AFC Urgent Care in Fuquay-Varina with Aaron Zucker

Guest: Aaron Zucker
Topics: ICSC Southeast Conference, Zucker Investment Group

Transcript:

Chris Ressa 0:08
This is retail retold the story of how that store ended up in your neighborhoods. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC man.

Ressa 0:32
First, I’d like to thank one of our sponsors credit Intel, known the financial health of retailers is crucial for the success of your retail related business. That’s what credit Intel is for credit Intel analyzes the financial health of hundreds of publicly and privately held retailers in different sectors. With a subscription to credit Intel you have access to comprehensive analysis of retailers, financial condition, and their Expert Analytics team. Visit credit intel.com for more information.

Ressa 1:02
Good afternoon, everyone. I’m here from the ICSC Southeast Conference. I’m here with Aaron Zucker. He is the president and CEO of Zukor Investment Group and today Aaron has an interesting story about a AFC Urgent Care that’s opening in North Carolina so welcome to the show our

Aaron Zucker 1:21
thanks for having me.

Ressa 1:22
So I think this is an interesting story because you not only own the building but you are also the franchisee which we don’t see a lot a lot of the franchisee you used to lease space to them. My company leased the space to franchisees all the time so you own the building and are the franchisee so why don’t you tell us a little bit how this kind of came to fruition here.

Zucker 1:40
Yeah, you know, I’m not sure if it’s few people are doing it because it’s crazy idea but we’re gonna give it a shot. So I guess to understand how this particular deal came together you to understand the story of sort of how we got there. And we meeting my my business partner on the AFC side. So AFC is really the only franchise driven concept in healthcare. And my business partner happens to me about best friend and roommate from college. And we’d always talked about where you go to college Alabama, roll tide for all those millions of people out there. Listen to your Alabama football fans know we had a tough loss recently LSU we get over that. My college roommate and I, it always talked about going into franchising together his background is he’s always worked in his family’s business, since finishing up from school, very operationally driven, understands how to hire fire and manage everybody from you know, hourly employees just making it hard. Making a hard day’s work into a living all the way up to you know, a GM type of level and understands retailing really well because he’s always outfitted retailers. That’s his family’s business and monotype a retail operation do they have so they buy so what they’ll do is they’ll buy everything that’s in the store with the exception of the merchandise when a retailer closes. So Nordstrom is doing a remodel. For example, I’ll come in and buy the old or even take away the old store fixtures for free from them. And then when that next small shop entrepreneur comes in and wants to get a mannequin or hangers or clothing racks or whatever, they’ll come to his company and buy those fixtures from him. Interesting. Yeah, so it’s got a little bit of a retail flavor to it. But a lot of really operationally driven skills and expertise that comes with his background, helping with my real estate background in finance background, we always felt like that between the two of us we had a lot of synergies and what he was really good at. I wasn’t so good at and what he’s not good at. I happened to be okay at so it’s worked out really well that knew that we wanted to do this together, who spent literally years looking for the right concepts, we got really serious about it, I would say at the end of 2017 when I knew I was eventually going to leave my job, which ended up happening about 12 months later, so we spent a nice chunk of 2018 just looking for good franchise concepts. We shipped over everything from fast food concepts to QSR to boutique fitness and nothing really clicked it was sort of like finding your wife for the rest of your life. You wanted that aha moment to really hit you in the face. And so we were pretty aggressive looking at as many different things as possible. We ended up going to the IFA, which is international franchising Association Conference in New York at the Javits Center last summer, just and we booked it like way in advance, like we were aggressively looking for a franchise concept. We were walking down the halls and nothing really stuck out to us. And like one of the last halls that we hit, happened to be where the American Family Care guys were sitting. And we both looked at each other when we found out that you could franchise health care, and specifically help people in the urgent care space. And we both were like this is let’s do this, and we jumped all in with them. We signed our franchise agreement in October of last year, so 2018 And when was the conference? The conference was in June so that relatively speaking that’s pretty quick. That’s quick. Yeah. Which we’ve been looking at stuff casually for a couple years. But in 2018 that first six months we were aggressive we were going to different concepts, Discovery days, which is really like you we interview each other Type of day like you fly to the company’s headquarters, you try the product if you haven’t tried it there before you get to walk through their prototype, whatever it may be. So we did that several times, we were very serious and, and to stumble across American Family Care, it really hit home for us. And we knew something that we wanted to do pretty awesome.

Ressa 5:16
So now you sign a contract. And so you signed the franchise agreement. And normally those give you like a geographic territory. Did you guys get a territory? Yeah. So

Zucker 5:25
we knew that it was going to be an AFC was really cool about this, it’d be somewhat broad that we knew and they knew that we wanted to be in Wake County, which is the county that Raleigh North Carolina’s

Ressa 5:37
got it. So you wanted to be in Wake County? And was that specific to health care? Or if you were doing any concept did you want to focus on what

Zucker 5:46
we were committed to either Charlotte or Raleigh with whatever we were going to do. And when it was important to us that it wasn’t a brand that was fully built out? Like Moe’s Southwest grill who’s got locations all over Charlotte and Raleigh. So we knew we wanted to be in Charlotte, because that’s where I am arrived, because that’s where he is. When we studied the opportunity with AFC, we explored both markets and we came to the conclusion that Raleigh was better for two reasons. Number one, my partner who’s going to be in the business every day and operationally because my you know, a lot of my time has obviously spent on the Zig side of things. We felt like operationally it made more sense. But more importantly, we felt like the opportunity was better for us in the Raleigh market because of the existing health care systems, hospitals, opening urgent cares. It’s happening. It’s happening more in Charlotte. As it turns out, it’s happening in Raleigh as well. But as we’ve gotten more comfortable the brand and now that we’re committed franchisees, and we’re learning more and more about the healthcare space, we remain just as if not even more confident from the day that we signed the agreement that we’re going to do just fine with the big health care systems.

Ressa 6:44
So now you have the agreement. You’ve all trained up in their system is the next step real estate.

Zucker 6:51
Yeah, the next step,

Zucker 6:52
it’s actually a simultaneous path. Rise. Very hot, Charlotte’s very hot, too. So finding great outparcel opportunities, and neither one of those markets we knew would be a challenge. Even as the ink was drying on the franchise agreement, I started looking for real estate, we bang our head against walls, it was a very difficult process. And getting into the best markets in Raleigh, is no easy feat. You’ve got unwilling to sell landlords, you’ve got no vacancy because of how hot the economy is globally and even sub globally with a more micro perspective and Raleigh. I mean, it’s as good as it gets throughout the country there.

Ressa 7:30
Were you looking at leasing space in the shopping center at all? And my No, we have taken an end cap or at least from one of the major reads like an out parcel or any Yeah,

Zucker 7:40
I think I think we would have it was definitely a second option behind owning. We looked at some stuff, we felt that owning is an important part of our strategy to control that process and understand the terms associated with our lease. And we’ve been kept honest in that because I do have a JV partner Zeke has a JV partner in the real estate deal. Rayleigh Miller properties of Charlotte, they’ve been phenomenal. We truly had two different hats on in that lease negotiation where they were truly the landlord. And I was truly in the interest of the tenant, because at the end of the day, the American Family Care hat that I wear involves a 15 year lease. And that’s a big commitment. And so while the landlord entity doing well, and being put in a position for long term success was important to me, it didn’t exceed the level of importance that the American Family Care needed to have.

Ressa 8:30
And so you sign the franchise agreement. You’re looking for space, you decide on Raleigh, and you really want to buy a building. Yep. It was that is there an amount? A lot of times I know that you have to get a location open in a certain amount of time. Did you have does your franchise agreement say you have to be opening? Yeah, how long?

Zucker 8:48
Yeah, technically speaking, we in theory, we would be in violation of it, we did receive an amendment to extend that. And if she understands the importance of real estate side selection, and wasn’t interested in us compromising and as a real estate guy by trade, really the only one in the franchise system who’s hyper focused on retail real estate as I am, I wasn’t interested in compromising either. So we explained to them the situation and told them how on fire rally is they they obviously have read articles just like everybody else’s, that it’s not easy to get in here. And they granted us that extension. But yeah, to your point, I mean, there was contractual obligation to open by a certain time that while we aggressively tried to hit, we weren’t going to compromise the real estate over it.

Ressa 9:28
And I know a lot of times in those franchise scenarios. The franchisor has a real estate team and they’re involved in the real estate process. Were they involved in the real estate process, like you mentioned, signed a 15 year lease, where did they have any say in any of those things?

Zucker 9:45
So we had to get a site approval package done and a checkmark side approval from corporate. I can’t speak for other franchisees experience because I’m only half my own to go off of corporate got pretty comfortable with our side pretty quickly and I think Part of that had to do with my background. And I think part of that had to do when you look at the fundamentals of the site that we selected, it made all the sense in the world,

Ressa 10:06
was it an on market deal or an off market deal, the real estate off market,

Zucker 10:09
a company called Moran capital out of Dallas, who very prudent, sophisticated investment group who buys really vacant or value added single tenant deals across the country, really there would Zig hopefully it will aspire to become one day, they’ve probably got 40 or 50 properties similar to what zigs buying across the country. So definitely respect their platform, they were not interested in selling a vacant Kentucky Fried Chicken to us because they wanted to monetize it. So I’ll be the first to say we paid a premium for that site. And I think that if another developer were to come in and buy that site, the economics would have never made sense. And really, the deal really only made sense, because we had that burden hand lease and tow, which was us as an end user, meaning American family

Ressa 10:56
did you pay as if there was a tenant in there? Not quite,

Zucker 10:59
but might as well have. We paid a premium we paid a little over, we paid about 1,000,002 for a site that’s on just under six tenths of an acre, and a secondary market suburban area. Like it’s not, but its main and main heart corner, and that was the site we needed to be in. And what market is this Fuquay Varina. So Raleigh Wake County, if you look at Wayne County, it’s set up very similarly to like Atlanta, or Charlotte. So to ring road model, meaning you’ve got the nucleus of the city that call it at the middle of the clock. And then there’s a clock, that’s a fictitious clock that essentially is made by a ring highway that people traveled to different communities. So this particular site made this particular market meeting few way is that six o’clock at that clock, however, the clock isn’t done being built yet. So if you look at a map of raw you basically have from Highway 55, and the apex Holly Springs area, which is call it eight o’clock on your watch, connecting all the way around, going north, wrapping all the way back around to the south to around, let’s call it four or five o’clock, well, we went at six o’clock. So eventually there’s that missing link is going to be connected by essentially a Super Regional highway, if you will, out there. And so that infrastructure is only coming into place because of the amount of growth that’s occurring out there, which is what really gets us excited about Ukraine, because there’s so many people that are moving into Raleigh from the Northeast are from Florida, from California for great tech jobs, finance, jobs, state government jobs, IT jobs, whatever it may be. And they’re they’re finding that they can go buy new construction homes that are beautiful, 3500 square feet, 4000 square feet for their family of four or five for like a half a million bucks. And everybody’s excited about that they want to move in have that infrastructure in place. And so because that growth is occurring all throughout Raleigh, and specifically in Fucoidan, it gets us excited, because a you’ve got more of a market share to be had for an urgent care operator like us. And B, there’s no direct loyalty to a direct opposite hospital system. Because everybody’s new to them. They’ve never heard of our big competitors in that in that specific market. So that’s what gets us excited about it.

Ressa 13:07
So you decided on Fuquay Varina. And I assume you were looking at you know, everywhere in Raleigh, you’re just looking at locations. It wasn’t that you said I want to be in Fuquay Varina. It was I wanted to be in Wake County, you found a site. It was a vacant KFC, and then it was on the market. So how did you get in touch with the landlord and all that stuff?

Zucker 13:28
Yeah. To your first point, you made a great point, Chris, we if we had only focused on Holly Springs, or Wake Forest, or Garner, which are very specific of fluids, market surrounding rallies that are similar to a few quick would have driven ourselves crazy, because we’ve never found a site and they might as well have just ripped up our franchise agreement and our franchise fee and said good luck, you’re never gonna open and we were out here, meaning FC corporate. So we had to become we had to shift from being hyper focused on the best market and not taking a good site and the best market but taking the best site and a good market. You know what I mean? So yeah, so we had to be hard corner, we had to have the right visibility, we had to have the right traffic counts and access and everything associated with the property. And if that happened to be in one sub market, as opposed to another one, we were going to be opportunistic, or else we wouldn’t have a choice. Otherwise, we just felt that was what was best for us to do.

Ressa 14:19
So you find this this vacant KFC, it’s the right corner you like Fuquay Varina. It’s in Wake County, then what?

Zucker 14:27
Yeah, so we were fortunate enough to leverage one of my brokerage relationships to get in with Moran capital, the owner of the property, who we spoke about before, who didn’t really have much of an interest in selling and frankly, I don’t blame them. They had a vacant building that they bought, it was a great site, they were getting calls off the hook. But ultimately, we were fortunate enough to be able to convince them to sell to us and part of that meant Money talks. We closed the transaction in late September of this year, going through the permitting process now couldn’t be any more excited to have it.

Ressa 14:57
So you’re going through the permitting process, your career was in leasing. Now you’re in buying properties. You’re doing the construction, hiring the GC and all that. Yeah,

Zucker 15:07
yeah. So we, I can’t speak highly enough about Ziggs real estate partner in the deal, Rayleigh Miller, they were, you know, it’s been nice to have them as a crutch, because they’ve been a prudent developer in the Carolinas for 20 years. In fact, they developed a grocery anchored shopping center 20 years ago down the street in few clay. So that just kind of goes to show how sophisticated and capable they are. So the lease structure was such where we were taking the lead on those things, but to have a really good relationship with them and say, Hey, what do you think of this GC? What do you think of this architect? What do you think of what the city said about it? Their comments here? They’ve been great partners for us in that sense. So while yes, I’m handling that. And to your point, you’re, you’re absolutely right, I am nowhere near the expert, and general contractor discussions, let alone an AIA Contract form or getting a permit or going through zoning with the city as I am in leasing. But to have, you know, the right partners, and that was a strategic move for us in place to have them alongside us throughout the process has been very helpful.

Ressa 16:08
And those those deals those leasing deals, right, you’ve been on now both sides of them. A lot of our listeners probably don’t know, there’s there’s outside of just rent and how long the lease is, there’s a lot of things that go into those leases, right? Yeah. And one of those things is landlord work versus tenant improvement allowance. And was there like a typical landlord work letter that you got as the tenant that on the landlord side, the landlord had a build out or TI and things like that? Yeah, we

Zucker 16:37
took that and threw it in the trash. The best way to cut the deal, we found, rather, because the real estate entity wanted to go in with x, we wanted to invest x and get y and return and make it as clear cut as possible. So that way we could get out of American family cares way, let them meaning my partner and I let us kind of go ahead and do what we needed to do, and not have to pay any sorts of premium with contingency factors with the landlord entity. So what we did is we structured the deal where the landlord entity bought the property and as a tenant improvement allowance check associated with the rent that we’re going to pay over the 15 year term.

Ressa 17:14
Got it? Options. Yeah,

Zucker 17:17
absolutely. Yeah, there’s options associated with the deal. We control the real estate is for quite a long time and don’t plan to go anywhere.

Ressa 17:25
And so you’ll be you’ll be open when

Zucker 17:28
target date right now is June, we were originally tracking to open around March. Not a good move in urgent care. Okay. Why is that because you’ve got flu season from like October to March. So if we were going to open we would have really had to hit the gas pedal, we considered trying to slam home, the construction slam or SBA loan, slam home, the architectural contracts and everything, get all the work done to be open in January, February. And after thinking through it, and understanding this is hopefully going to be the first of many of these things, we figured we’d do the first one right operationally and not throw our employees right into the fire of having to, you know, provide an enormous amount of health care with having a ton of patients coming in on day one. So we made and that’s assuming we get everything done in January, you have one hiccup of construction. Next thing you know you’re in March, and then your your your dead slow season for the next for the foreseeable future. So we decided to push back opening to June or July, which will still be a little bit slower. But we’ll be able to source business through like physicals more primary care work, get the staff really teed up and ready to go so we can service our patients in the best way possible starting in the fall for next year’s flu season.

Ressa 18:41
Oh, that’s, that’s amazing. That’s really interesting. Wouldn’t a didn’t think like a normal retailer has Christmas season. That’s the real season. And yeah, flu seasons, clearly your season.

Zucker 18:51
Yeah, you know, I get it. And part of that decision was data driven, we get a weekly report of how all the franchisees do in the system on how many patients per day they see. And if you look at any random week in December visa vie may it’s it’s it’s enough to tell you not to Okay, got it? Yeah, yeah, it’s fascinating business.

Ressa 19:11
And so from the real estate side, are you guys a holder of this property?

Zucker 19:16
You know, that’s to be determined. As you know, I’ve partners will really Miller and we’ll collectively make a decision to either sell or hold on to it. I think we’ll see where the environment takes us in the next 12 to 36 months and if it makes sense to cashflow the property and hold it long term great. And if it makes sense to sell it that’s great too.

Ressa 19:35
I haven’t seen so in the triple net lease market what is in our AFC Urgent cares trading right now there’s

Zucker 19:42
cops out there for sure. It’s just like any other tenant that takes both freestanding and multi tenant buildings, you’re gonna see a premium associated with single tenant deals. visa vie being in a strip. So the comp set out there, a lot of them aren’t applicable because sometimes there’s 234 tenant It’s in a strip center on an out parcel, whereas we’re single tenant here. There are some single tenant comps out there. And that’s obviously driven by market franchisee credit, etc. Their aggressive cap rates though investors in general do love the use. It’s the business model. I can speak to FC only. But I mean, I can’t imagine a lot of these other educators aren’t doing well, based on the model associated with helping people. I mean, people aren’t going to stop getting sick anytime soon.

Ressa 20:27
Awesome. Well, that is a really cool story, Aaron. So we asked everybody right now to rapid fire questions. I don’t do it in rapid fire. But there are two questions we ask everyone. So one simple, best piece of real estate advice you would give anyone out there?

Zucker 20:46
Is that specific to like, deal making or anything, any real.

Ressa 20:50
Any real estate advice,

Zucker 20:51
when in doubt, go to the conference, go to the cocktail party, go to the ULI event in your neighborhood, do whatever you got to do to meet as many people as humanly possible. You know, I tell I’m going to rant I apologize. But to what my story is, and people ask me, I’m fortunate that I’ve been able to put together a nice Rolodex in this industry. And people asked me, how did you get that deep Rolodex at such an early age in your career. And I followed my own advice, meaning I went to everything and what I did, and what I noticed by doing so invest by being visible and putting yourself out there and talking to as many people as possible. When I was first getting into the business at 22, I would go up to the retailer, and I’d introduce myself. Then the next year, I’d go back to that same conference. And they’d say, remind me who you are again. And then the next year, I’d go back and they’d say, Oh, yeah, I remember you. We had an appetizer or cocktail, or we had dinner together that one night, tell me your name again. And then the next year, I’d go back and they finally knew who I was. And they finally got and then the year fine. We got to a point where we were friends. And we were you know, we have a texting relationship like Hey, happy birthday, or saw your kid did well on the soccer game, because we’re friends on Facebook or Instagram. And so it’s just like anything else that takes repetition. And putting yourself out there and meeting new people can be uncomfortable at times. But to me it’s a it’s a requirement for succeeding in this business.

Ressa 22:13
It’s great advice. You are a network ninja. I do agree. So last question. Extinct retailer, you’d love to see come back from the dead.

Zucker 22:24
You asked Josh this. And I listened to it. And I said, Holy crap. I hope he doesn’t ask me that because I have no idea what I would say. You had an interesting answer. Because you didn’t you did it emotionally.

Ressa 22:37
I did do it emotionally. Yeah. And I still you

Zucker 22:39
know, you’ve got me right here. The big lights are on and you’ve got 1000s of people in the crowd. And I still don’t know what to say. You know, it’s interesting. I thought about this. My mind’s racing as it always does. But there’s there’s actually a Restaurant Group in Charlotte that just closed both their locations. I have no idea why they were successful. I had a really good brunch meeting there recently, like, like 90 days ago, and they shut down. It’s called tears cafe. So rip to tears Cafe had a really successful business meeting with a partner on a different deal. David Copa with Conover south and a couple of the guys in his office, we ate there, and I was sad to hear that they closed recently because I texted David. I’m like, Man, I’m glad we got him while we could because we had the best chicken biscuits there for brunch Monday. So that’s my really uneventful, terrible answer to your very good question.

Ressa 23:27
Well, listen, it’s been great. I hope this AFC Urgent Care goes phenomenal. How many locations do you think you’re gonna get to?

Zucker 23:33
You know, I don’t see why we can’t do 12 to 15 and Wayne County I really believe that I think the opportunity with this brand is endless, you know, today, AFC has 200 locations 70 of which are corporately owned, all in Alabama, the other 130 or franchise driven the franchisee model is only really been happening since 2012. And that was when it was a different brands brand called doctors Express. I don’t know if you came across them anywhere. So doctors Express was acquired by AFC when Bruce Irwin, Dr. Bruce Irwin, who’s the founder and CEO of AMC decided that he wanted to get into the franchise business like three years ago, four years ago. So this whole thing is really pretty new to the marketplace. It’s still taking off. And the vast majority of the franchisees are very pleased with the brand. They’re growing exponentially. I would encourage all of our developer friends who are listening to this to reach out to FC on good sites where they’re strong Outparcels and good neighborhood markets. Because I do no I don’t I don’t think I know the business model is fantastic. And I think it’s the future of a lot of retail real estate but I even more so more importantly, I think it’s the future of healthcare. I think that healthcare is really missing. that personal touch that you often get that a franchisee can provide more oftentimes in a corporate location in Chick fil A everybody loves what they do and how well they do. Do it. And I think a lot of that has to do and I’d be interested to hear if you agree, a lot of that has to do with the fact that the franchisee is either in the restaurant or there all the time or very close by all the time, and he’s out in the community. And that’s really what the FC model calls for. And we essentially want to be the Chick fil A of healthcare.

Ressa 25:15
Yeah, totally. I totally agree when, you know, I was meeting with a, a company up in the northeast and electronics chain. And one of the things he mentioned to me was a lot of people go in our store and they go home and they say, go see Joe at such and such location, Joe will take care of you. And when you have that personal connection with everyone, that’s, you know, you can’t replace that online. Right, Joe can’t take care of you online. So at least today, maybe he will one day,

Zucker 25:42
you make an unbelievable point. And I can’t believe I haven’t mentioned anything about that, to this point, are we’ve been so selective, as selective as we thought we were at the real estate. And I’d like to think we were pretty selective. We’ve been twice as selective with hiring the right medical director for our facility, because I mean, it’s our opportunity to service and help those patients. And obviously, we don’t want to want anybody to get sick, but everybody needs a physical and we want them to come back after they’ve had maybe they had a flu, maybe they had the flu, and we were able to help them with the flu. And because that our our practitioners were able to build a nice rapport with the patients, we’re able to get them back in and help them quickly and efficiently and get them back to work or running around picking up the kids or doing whatever they need to do after getting a physical next time they come in. So totally agree having the right personal touch with our staff is going to be critical, just like it was is your memory serves you with your electronics store in the Northeast.

Ressa 26:37
Well listen, and I hope it goes well. You’re the first one where the store is not quite open yet, but it will be soon in June. Yeah, so you can hit flu season. And thanks for coming on. Really appreciate it, Chris. Thanks

Zucker 26:48
for having me as always, man.

Ressa 26:51
Thank you for listening to retail retold. If you want to share a story about a retail real estate deal you were a part of on our show. Please reach out to us. This podcast highlights the stories behind deals from all perspectives. So it doesn’t matter if you’re a retailer, broker attorney or an architect. Contact Diane Lee at D L E at DLC mgmt.com Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode