Understanding the Appeal of QSR Tenants in NNN Investments

05/31/2025

Industry Insights

Quick-service restaurants (QSRs) have become a cornerstone of the triple-net lease (NNN) investment market. Savvy real estate investors and institutional buyers are drawn to QSR tenants for their unique combination of stable cash flows, essential service offerings, and long-term, passive lease structures. In good times and bad, people need to eat – and when budgets tighten, consumers often trade down from full-service dining to affordable fast food. This was evident during the Great Recession, when many casual dining chains struggled, yet QSR giants like McDonald’s managed to grow same-store sales in 2008 and 2009 even as the broader economy faltered. QSR businesses also offer an in-person experience that e-commerce can’t replace – you can’t download a hot burger or coffee. In an era where retail investors prize “Amazon-proof” tenants, fast-food chains stand out for providing products and convenience that online retail can’t fully replicate.

Another key appeal of QSR NNN properties is the truly passive income they generate. Most stand-alone QSR locations are leased on an absolute NNN basis, meaning the tenant is responsible for property taxes, insurance, and maintenance. The landlord’s role is largely to collect rent checks – often described as “mailbox money.” Leases typically span 10 to 20 years (often with extension options), locking in long-term cash flow. Crucially, many QSR leases are backed by strong corporate guarantees. Major franchise operators or corporate franchisors stand behind the rent obligations, significantly reducing default risk for the property owner. Even if an individual restaurant’s sales underperform, a creditworthy tenant with a national brand (and often investment-grade ratings) ensures rent gets paid. This combination of economic resilience, internet-resistant business models, and hands-off management makes QSR tenants highly coveted in the NNN investment arena.

Key Criteria for Evaluating QSR Net Lease Deals

Not all QSR investment opportunities are created equal. Sophisticated investors examine several critical factors when evaluating a fast-food property on a triple-net lease:

Tenant Credit & Lease Guarantee

The first consideration is the credit quality of the tenant and the nature of the lease guarantee. Is the lease backed by a major corporate entity, or is it signed by a local franchisee? Corporate-backed leases (for example, a Starbucks or Chipotle corporate store) generally carry the highest degree of certainty, since the full assets of a large company stand behind the rent. Many franchisors in the QSR space have investment-grade credit ratings, which can make financing easier and lower the perceived risk. Franchisee-backed leases, on the other hand, require a closer look at the operator’s financial strength. Some franchisees are large multistate operators (often backed by private equity capital) with dozens or hundreds of units, in which case their guarantees may be quite solid. Other times, a lease could be guaranteed by an individual owner-operator of a single fast-food restaurant – a scenario where an investor must underwrite the local business’s performance. Ultimately, understanding who is on the hook for the rent is paramount. A strong guarantee (corporate or well-capitalized franchisee) is a big plus, as it means the landlord’s income is safer even if the location’s sales fluctuate. ( Net-Trade ) ( Globe St )

Lease Structure and Terms

The NNN lease structure itself is another key factor. Investors should scrutinize the length of the primary lease term and any options, rent escalation clauses, and the type of NNN lease. Absolute NNN or ground leases (where the tenant handles all expenses, including roof and structure) are especially attractive for their zero landlord responsibilities. Many QSR deals come with initial terms of 15–20 years, providing a long runway of stable income. It’s important to confirm regular rent bumps are built in – for instance, 1-2% annual increases or 5-10% bumps every five years – as these escalations help the income keep pace with inflation over time. Without escalations, a long-term flat rent could lose real value if inflation runs hot. Additionally, investors consider renewal options (how many and for how long) since strong renewal rights indicate the tenant’s commitment and give the owner potential income for decades beyond the base term. In today’s inflationary environment, leases with rent growth provisions and longer terms are especially prized for the predictability and hedge they offer.

Franchise vs. Corporate Operated

The operational model of the QSR tenant ties into the credit discussion but is worth its own emphasis. A property occupied by a corporately operated store (e.g. a company-owned McDonald’s or Chipotle location) often signals that the brand itself has skin in the game at that site. Corporate operators tend to choose premier locations and uphold uniform standards, and their leases come with the backing of the franchisor’s balance sheet. Franchise-operated restaurants are more common for many brands (like Burger King, Taco Bell, KFC, etc.), and these can be excellent investments as well – particularly when the franchisee is experienced and well-capitalized. The key is to evaluate the scale and financial health of the franchisee. For instance, a large franchise group operating 100 fast-food units will typically provide a stronger guarantee (sometimes even a “master lease” or umbrella guarantee across multiple locations) compared to a small 1-2 unit franchisee. Many net lease buyers actually seek out deals with leading franchisees, because they can offer slightly higher cap rates than corporate stores while still providing reliable rent backed by an established operator. It’s a classic risk-reward trade-off: corporate leases are ultra-stable but priced at a premium, whereas franchisee leases may yield more income but warrant extra due diligence on the operator.

Location and Real Estate Fundamentals

The old adage “location, location, location” holds true even for drive-thru restaurants. Sophisticated investors dig into the real estate fundamentals of a QSR site beyond the tenant’s brand name. Key factors include traffic counts (is the restaurant on a busy thoroughfare or hard corner with high visibility?), access and egress (convenient entry from major roads, good drive-thru stacking space), nearby demand drivers (dense residential neighborhoods, schools, shopping centers, highway interchanges, etc.), and competition in the trade area. A McDonald’s or Chick-fil-A in a prime retail corridor or highway exit will inherently carry more long-term real estate value than one in a secondary location with limited traffic. The underlying land parcel – size, zoning, and alternative uses – also provides a margin of safety. Investors favor sites that would be easily re-leased or redeveloped if the tenant ever leaves. For example, a well-located pad site with a drive-thru in a growing suburb will attract other tenants even if the original QSR vacates, whereas a out-of-the-way location might struggle. In essence, a QSR property offers two investments in one: a stable income stream from the lease and a piece of real estate with its own intrinsic value. The stronger both are, the better the risk-adjusted return.

Top QSR Brands Attractive to Net Lease Buyers

Certain household-name restaurant chains consistently rise to the top of NNN investors’ wish lists. These tend to be industry leaders with dominant market share, strong financials, and proven resilience through economic cycles. While exact rankings vary, a few QSR tenants are almost universally regarded as “blue chip” net lease assets:

McDonald’s: As the world’s largest fast-food chain with over 38,000 locations, McDonald’s is synonymous with stability in the QSR space. It has a track record of weathering recessions (including same-store sales growth during 2008-09) thanks to its global scale and value-oriented menu. Many McDonald’s sites are absolute NNN ground leases on valuable real estate, which, combined with the company’s investment-grade credit, makes them trophy assets for net lease investors.
Starbucks: The dominant coffee shop chain (35k+ stores globally) is highly sought after in NNN portfolios. Starbucks typically signs 10+ year corporate leases and enjoys a loyal daily customer base. With a strong credit rating (BBB+) and consistent sales growth, Starbucks offers reliable income and often features drive-thru locations that further boost traffic. It’s considered a lower-risk, bond-like tenant in the net lease world.
Chick-fil-A: A top-performing fast-food brand specializing in chicken sandwiches, Chick-fil-A has astonishing unit economics – often the highest sales volumes in the industry. Despite being privately held and operating only about 3,000 locations, it ranks near the top in U.S. system-wide sales. Investors covet Chick-fil-A ground leases (commonly 15-20 year terms) because the company operates its stores (no traditional franchising) and has an almost cult-like customer following. These assets are known to trade at premium valuations, reflecting Chick-fil-A’s strength and rare credit profile in the net lease market.
Taco Bell: The largest Mexican-inspired QSR (part of Yum! Brands, which holds the leading QSR market share in the U.S. ) is another favorite. Taco Bell’s affordable, innovative menu and late-night appeal drive high traffic to its 7,000+ U.S. locations. Net lease Taco Bells are typically franchise-operated but often come with robust franchisee guarantees or credit enhancement from Yum. Long 20-year leases with regular rent bumps are common. Investors are drawn to Taco Bell for its youthful customer base and the backing of a Fortune 500 franchisor – a combination that provides confidence in long-term performance.
Wendy’s, Burger King, and KFC: These are also among the top QSR names, each with thousands of locations and global brand recognition. Wendy’s is known for steady improvements and often features long franchisee leases with strong operator guarantees (large franchisees may have backing from the franchisor). Burger King, while experiencing some performance variability, remains a major player under Restaurant Brands International – net lease investors often find BK properties at slightly higher cap rates, offering a bit more yield for a still-iconic brand. KFC (part of Yum! alongside Taco Bell) provides exposure to the popular fried chicken segment; many KFC deals are affordable relative to other top QSRs and still benefit from Yum!’s corporate support. All three brands have solid footing in the net lease arena, especially when paired with experienced franchise operators.

Beyond the big five or six, net lease buyers also keep an eye on other well-known quick-service tenants like Dunkin’ (dominant in coffee/breakfast, backed by Inspire Brands), Domino’s (largest pizza chain with a strong delivery model), and regional favorites such as Sonic Drive-In or Arby’s (both part of Inspire Brands). Each of these has its own appeal – for instance, Dunkin’ offers a steady morning customer base and often comes in smaller footprint locations, while Sonic’s unique drive-in format and loyal following in certain regions provide diversification in a portfolio. The common thread is that these established brands bring a history of consumer demand and recognizable logos, which translate to lower perceived risk and easier financing in the eyes of investors. In net lease, tenant quality is king, and the top QSR brands have earned their place as reliable long-term tenants.

Emerging Fast-Casual and QSR Brands to Watch

The QSR landscape is always evolving, and today’s emerging brands could be tomorrow’s sought-after net lease tenants. In recent years, a number of fast-casual and upstart quick-service concepts have gained traction with consumers and caught investors’ attention:

Chipotle Mexican Grill: Often credited with pioneering the fast-casual category, Chipotle now boasts over 3,000 locations and has firmly entered the net lease investor radar. The company operates all its stores (no franchising) and carries an investment-grade credit rating, making its leases highly secure. What’s exciting investors lately is Chipotle’s rollout of “Chipotlane” drive-thru pickup lanes at new stores, combining fast-casual food quality with drive-thru convenience. This innovation has boosted sales and made Chipotle sites even more attractive as long-term NNN investments.
Raising Cane’s: This chicken-finger focused chain has exploded in popularity nationwide. With roughly 600+ locations (and plans to expand aggressively), Raising Cane’s has posted impressive sales volumes – in fact, it roughly doubled system-wide sales from 2019 to 2022. New Cane’s deals often come as 15 or 20-year NNN ground leases, and investors are eagerly pursuing them. The brand’s cult-like following and simple, high-volume menu translate to very strong unit economics. Many observers see Raising Cane’s as a potential “next Chick-fil-A” in terms of growth trajectory, making its properties ones to watch (and to hold for the long term).
Dutch Bros Coffee: An Oregon-based drive-thru coffee chain that went public in 2021, Dutch Bros is in high-growth mode with a goal of eventually reaching 4,000 stores across the U.S. It offers an energetic brand image and a proven drive-thru model focusing on coffee, smoothies, and specialty drinks. From an investor’s standpoint, Dutch Bros leases usually run 15 years NNN with regular increases, and many locations are sold as sale-leasebacks by the company to fuel expansion. These deals have garnered attention for their combination of growth potential and solid initial yield. As the “coffee wars” heat up in net lease , Dutch Bros represents the kind of up-and-comer that adds diversity and future upside to a portfolio anchored by more established tenants.
Shake Shack: In the “better burger” fast-casual category, Shake Shack has built a strong brand with its high-quality burgers and urban presence. Now with over 400 locations (and growing internationally), Shake Shack is expanding into more suburban markets and even adding drive-thru locations in select areas. While many Shacks are in dense city settings (often as part of multi-tenant properties), their move toward free-standing units with drive-thrus means more net lease opportunities. Investors like Shake Shack for its trendy brand cachet and robust sales volumes, though cap rates on these tend to reflect the company’s growth potential (i.e. they trade tightly). It’s a name that skews toward a younger demographic and can signal a forward-looking portfolio mix.
Other Buzzworthy Concepts: A wave of smaller regional chains and new franchises are also on investors’ radar. Concepts like 7 Brew Coffee and Scooter’s Coffee (drive-thru coffee stands), Black Rifle Coffee (a veteran-owned coffee chain), Sweetgreen (health-oriented fast casual), CAVA (Mediterranean fast casual), and Portillo’s (Chicago-style fast casual, now expanding) are all drawing interest. These emerging brands offer unique flavors and loyal followings, but they are still growing into their footprints. Net lease investors willing to take on a bit more risk for higher yield might find select opportunities among these rising stars. As always, thorough due diligence is key – the concept should demonstrate strong unit economics and a sustainable growth plan before it earns a place in a long-term NNN portfolio.

The fast-casual segment in particular is increasingly overlapping with traditional QSR in the net lease market. Foot traffic data from early 2024 showed fast-casual restaurants outpacing QSRs in growth^※, indicating consumer appetite for fresher, customizable menu options is rising. For investors, this means the next Chipotle or Chick-fil-A might be an up-and-comer today that can provide excellent returns if acquired early. Keeping an eye on these trends – and perhaps allocating a portion of one’s investment budget to emerging tenant brands – can yield both diversification and the chance to ride the wave of the next big thing in dining.

Institutional Investors and REITs in the QSR Space

Net lease investments in QSR properties aren’t just the domain of individual “mom and pop” investors or 1031 exchange buyers – they have also garnered significant interest from institutional players. Large real estate investment trusts (REITs) and private equity-backed funds actively acquire portfolios of QSR-occupied properties. Their involvement further validates the appeal of the asset class. For example, well-known net lease REITs like Realty Income , Agree Realty , and National Retail Properties each hold hundreds of restaurant properties, including many quick-service units, in their portfolios. These firms target high-quality assets with creditworthy tenants – exactly the profile that top QSR leases offer. In fact, National Retail Properties’ roster of top tenants includes major franchise operators like the Flynn Restaurant Group (a large Taco Bell and Arby’s franchisee)^※, underscoring how essential fast-food chains are to the net lease ecosystem.

Institutional investors often pursue QSR deals a bit differently than smaller buyers. Rather than buying one-off $2 million drive-thru properties on the open market, institutions prefer to acquire in scale. It’s not uncommon for a REIT or fund to do a sale-leaseback transaction directly with a franchisee or franchisor, acquiring a package of 10, 20, or even 100 restaurant sites in one go. This approach ensures efficient deployment of capital and ability to influence lease terms. As Randy Blankstein of The Boulder Group noted, “institutions remain bullish on the QSR sector, but they’re typically seeking to acquire big portfolios of properties – one-off deals that are $1.5–$2 million are too small for a lot of institutions.”^※ Smaller private buyers, including high-net-worth individuals in 1031 exchanges, often snap up those individual listings, while REITs focus on bulk acquisitions or larger price-point deals.

The presence of institutional capital has provided liquidity and competitive pricing in the QSR net lease market. REITs like Four Corners Property Trust (FCPT) , which specializes in restaurant properties, have been extremely active – purchasing dozens of fast-food sites from operators looking to unlock real estate value. (For instance, FCPT recently acquired a portfolio including a Raising Cane’s, demonstrating its strategy of targeting strong performers in the QSR segment^※.) This institutional participation benefits sellers (by providing exit options at attractive cap rates) and also signals to individual investors that the asset class is viewed as stable and institutional-grade. Of course, it also means more competition for the best deals – when a brand-new McDonald’s or Chick-fil-A comes to market, you may be bidding not only against local investors but also against well-funded entities that recognize the value of a long-term net lease to a premier QSR tenant.

The Macroeconomic Environment: Interest Rates, Yields, and Inflation

Like all real estate sectors, the net lease market for QSR properties is influenced by broader economic forces – most notably interest rates and inflation. Over the past couple of years, rising interest rates have posed a headwind for commercial real estate values in general. As the Federal Reserve increased benchmark rates, the cost of debt went up and investors began demanding higher cap rates (lower prices) to keep spreads over the risk-free Treasury yield. Net lease assets, which are often compared to bonds due to their long-term fixed income streams, are particularly sensitive to rate movements. However, the QSR segment has shown remarkable resilience in this environment. Investor demand for essential, food-oriented tenants has been so high that cap rates on fast-food properties have not risen as quickly as interest rates. Recent research indicated that QSR cap rates remained on average around the mid-5% range – notably lower than the overall single-tenant retail average – even after successive rate hikes ( Globe St ). In other words, buyers have been willing to pay a premium (accept a lower yield) for top-tier QSR leases, allowing this niche to sustain values better than many other property types. For existing owners, this is welcome news; for buyers, it means top QSR deals can still be pricey on a relative basis. If interest rates continue to stay elevated or rise further, there is potential for some upward pressure on cap rates across the net lease market, including QSRs – but so far, strong demand has kept pricing for high-quality QSR assets quite firm.

Meanwhile, the spread between cap rates and the 10-year Treasury yield is a metric investors closely watch. That spread had compressed somewhat as the 10-year yield climbed above 4%, but in early 2025 signs point to spreads widening again slightly as sellers adjust pricing expectations.^※ The takeaway for net lease investors is to underwrite conservatively in a higher-rate world. Utilizing fixed-rate financing or lower leverage can mitigate interest rate risk on acquisitions. Additionally, many investors are negotiating harder on price or seeking properties with annual CPI-based rent bumps to better hedge against inflation and rates.

On the inflation front, QSR tenants have proven relatively adept at weathering cost increases. Food and labor expenses have risen, but large chain operators responded by raising menu prices and leveraging their economies of scale. Because fast food is a smaller expense for consumers (a quick meal or coffee), demand has been fairly inelastic – people continue to buy their $5 burgers and $4 lattes even if prices tick up. There are limits, of course, and prolonged high inflation could alter consumer behavior at the margins (fewer visits or trading down to dollar menu items). But in general, QSRs boast strong pricing power for a low-cost product. This makes them more inflation-resilient than many other retail segments. For landlords, having rent escalation clauses in the lease provides a further buffer, ensuring that rental income grows over time. A typical 2% annual increase, for example, might not fully match high inflation in a given year, but it compounds and helps maintain the real value of the lease revenue. Many newer QSR leases also include explicit inflation protection through CPI-linked adjustments or more frequent bumps. During the recent inflationary surge, most QSR operators not only survived – they thrived by focusing on value offerings and efficient operations. In fact, the QSR industry at large is forecasted for steady growth in the coming years; one industry outlook valued the U.S. QSR market at about $400 billion in 2024 with a projected 10%+ cumulative growth through 2029 . Such projections reflect confidence that fast-food concepts will continue to generate solid sales in virtually any economic climate, a reassuring sign for those investing in the underlying real estate.

Strategic Portfolio Recommendations for Long-Term Success

Incorporating QSR assets into a real estate portfolio can be a highly effective strategy for stable, long-term cash flow – but it works best when done thoughtfully. Here are some strategic considerations for investors planning their net lease portfolio with an eye on the future:

Balance Core and Emerging Tenants: Anchor your portfolio with a few “core” QSR tenants (such as the McDonald’s and Starbucks of the world) that offer rock-solid stability, and then consider allocating a portion to emerging brands with upside. This barbell approach allows you to enjoy steady income from the giants while capturing growth potential (and typically higher initial yield) from newer concepts. For example, a core holding might be a 15-year ground lease to Chick-fil-A in a prime location – essentially a bond-like asset – complemented by a smaller investment in a rapidly expanding chain like Dutch Bros or an up-and-coming regional franchise. Diversification within the QSR sector can enhance returns without significantly undermining stability, as long as each asset is carefully underwritten.
Pay Attention to Lease Expirations and Exit Strategy: Net lease properties are often long-term holds, but it’s prudent to stagger your lease maturities and have a game plan for each asset. If all your QSR leases expire around the same year 15–20 years from now, you could face a wave of vacancy or renegotiations at once. Instead, try to acquire assets with varying remaining terms or plan to sell and re-balance periodically. Properties with 10+ years of term are easiest to finance and command the highest prices, so some investors choose to sell around the time a lease has, say, 5–7 years remaining, and trade into new 20-year deals via a 1031 exchange. Others hold and renew leases with tenants if the relationships are strong. Both approaches can work – just avoid being caught off-guard by a cluster of lease expirations with no strategy in place. Long-term planning also means keeping an eye on the tenant’s business health as the years go by; if a particular franchise brand starts to decline in popularity, an early sale might be wise.
Mind the Macroeconomic Climate: Given the impact of interest rates on net lease valuations, savvy investors time their acquisitions and refinancing to the rate environment. In high-rate periods, cap rates tend to be higher (prices lower), which can present buying opportunities for those with capital ready – particularly if you believe rates will eventually stabilize or fall, compressing cap rates and boosting asset values down the road. Conversely, when rates are very low (and net lease prices at peak), it may be a good time to harvest gains by selling an asset at an aggressive cap rate. Also, factor in inflation expectations: assets with strong rent escalations are more valuable in an inflationary scenario. Continually evaluate the spread between your property yields and the prevailing Treasury rates; maintaining a healthy risk premium is crucial for long-term success in this space.
Leverage Relationships and Market Knowledge: The best QSR net lease opportunities often never hit the open market – they’re traded off-market or within networks of specialized brokers and investors. Building relationships with net lease brokers, joining investment platforms, and staying plugged into industry news can give you a first look at attractive deals (for instance, a franchisee looking to do a sale-leaseback portfolio). Additionally, use data and research to inform your decisions: monitor which brands are expanding, how they’re performing financially, and what cap rate trends are looking like. Being informed about the QSR industry – from drive-thru technology innovations to changing consumer tastes – will make you a sharper real estate investor in the niche. For example, knowing that a particular fast-casual chain is winning market share or that drive-thru coffee volumes are surging can guide you toward the right acquisition targets before they become obvious to everyone.
Stay Patient and Prioritize Quality: Perhaps most importantly, maintain discipline in selecting QSR assets. It can be tempting to chase a high yield by buying a lesser-known fast food deal in a tertiary market at an 7% cap rate, but ask yourself whether that tenant will still be thriving a decade from now. Often, paying a bit more (and accepting a lower initial cap rate) for a top-tier tenant in a prime location is the wiser long-term move. The rental income may be slightly lower relative to purchase price, but the stability and eventual exit liquidity are far greater. Prime real estate with a strong tenant will hold value and find demand in nearly any market conditions. Aim to build a portfolio that you’d be comfortable holding through a recession or any cycle – one populated with industry-leading brands, strategic locations, and solid lease contracts. Over years and decades, such a portfolio can throw off passive income like clockwork, allowing you to sleep well at night regardless of economic headlines.

In conclusion, QSR tenants in NNN investments offer a compelling blend of reliable cash flow and defensive positioning that few other asset classes can match. These properties marry the consistency of long-term leases and creditworthy rent checks with the dynamism of the food service industry – an industry that adapts quickly to consumer needs and has proven durable through tech disruptions, pandemics, and economic swings alike. Whether you’re an investor seeking to diversify a real estate portfolio, a broker advising clients on 1031 exchange options, or an executive shaping a REIT’s acquisition strategy, understanding the appeal of QSR net lease assets is crucial in today’s market. By focusing on tenant quality, lease fundamentals, and broader market trends, you can capitalize on the strengths of this sector while managing its risks. The drive-thru restaurant down the street isn’t just a place to grab a quick meal – it might also be the foundation of a long-term investment strategy built on stability, growth, and “sticky” consumer demand. And as the QSR sector continues to evolve with new concepts and technologies, it offers not just a snapshot of America’s dining habits but a resilient vehicle for wealth generation in commercial real estate.