Starbucks Who? There's a new (Dutch) Sheriff in Town

Good morning! And welcome back CRE Junkies, as we share commercial real estate stories, news, and investing insights.

Here’s what we have for you this week:

• Starbucks Who? Dutch Bros: The New Sheriff in Town

• This Texas City’s Bubble Officially Popped?

Thanks for that, Bill!

⬇️ Let’s get into it ⬇️

Starbucks Who? There's a new (Dutch) Sheriff in Town

Here’s what’s happening:

Dutch Bros is building like crazy, and there’s no signs of slowing down.

They're now the 4th largest coffee chain in the U.S. but they are just getting started

Starbucks on the other hand is beginning to move backwards.

The Numbers:

Dutch Bros has 24% unit growth from 2022 to 2023 (via Technomic Top 500) opening 159 new stores last year.

Starbucks had its worst Quarter since Covid. Net Sales dropped a whopping 15% in Q2 of 2024. Ouch!

Meanwhile…. here’s the line at a Dutch Bro’s that just opened in Covina, California

So What’s Going on?

Starbuck’s model has been dominate for years, but their lack of innovation has really slowed their grind. (no pun intended)

Their latest attempt on something new was their Oleato Drink which is basically coffee mixed with olive oil.

Uh… More like Oleat-No!

If you haven’t tried it yet, I’ll save you the trouble. It’s Not Good. And leaves your lips covered in oil. Gross!

Meanwhile, Dutch Bro’s Model is becoming more customer focused with things like:

• Fast and friendly drive-thru service

• Protein Coffee Shakes

• Boba Drinks that you can mix and match

Speaking of drive-thru, they’re huge!

Most locations don’t even have indoor seating. Just churn and burn! 🔥

Okay… but what does this have to do with Commercial Real Estate?

Investors now prefer buying Dutch Bros buildings over Starbucks buildings.

A couple reasons behind that:

1. Dutch Bros' (Asset’s Under Volume) AUV is slightly higher at $1.973 million per location compared to Starbucks' $1.955 million.

2. Dutch Bros’ Leases are 15 - 20 years as opposed to Starbucks 10 year standard leases. Longer returns.

3. Dutch Bros’ carries a Absolute Net Lease (Zero Landlord responsibilities) where as Starbucks is NN Lease (LL pays Maintenance Costs)

Of course, nothing in this newsletter is investment advice - but Dutch Bro’s Stock is looking very juicy right now!

⬇️ Next up ⬇️

How this Texas City's Bubble may have Officially Popped

Austin, TX has been known to be one of the hottest landing spots during the 2021-2022 housing boom.

Let me remind you why:

1. Interest rates were low, so houses sold at inflated values

2. Austin was becoming the new Tech Hub of the South

3. Tesla had just built their Gigafactory 10 minutes away

But now 3 years later, things have completely changed

1. Massive lay-offs in tech across the board. Including 167,000 in Q3 2023 alone, crushing Austin’s tech scene.

2. Tesla laying off 2,700 workers in Austin

3. People that moved here realizing Texas is Too Damn Hot

So what’s happening now? People are leaving.

Austin is ranked 5th in cities people are moving out of in 2024.

Given this - The expectation is that more houses would be selling as people begin to relocate.

But that’s not the case. There are 15.9% less homes being sold this year.

Why? The reason is simple. They can’t afford to.

Interest rates in 2022 were sub 3%. Today in 2024, they are pushing past 7%.

For perspective, a $500k house (20% down) in 2022 would cost $1,686/month while today it would cost $2,661/month.

That means your $500k house you bought in 2022 would be the same payment today as a $360k house. You lost $140k in value.

So what’s the effect?

Well, Austin Rental prices have dropped faster than my New’s Year Resolution in February. (There’s always next year)

But seriously - the stats don’t lie. Austin’s Median Rent Prices have dropped -7.3% compared to the national average of -0.8%

Don’t get me wrong, Austin is doing just fine but has definitely come back down to earth after the surge a couple years ago.

For those that overpaid by 25% during the gold rush of rates - This one’s for you! 🍻 Cheers.