Burgers & Banking: A Habit-Forming Venture

Using capital from Live Oak Bank, developer The Morgan Companies is adding Habit Burger to its tenant roster at Peace Haven Village shopping center.

This article was originally published in Southeast Real Estate Business’ February 2019 issue. To view the original publication, please click here.

By Angus McDonald
General Manager, Commercial Real Estate, Live Oak Bank

The booming town of Clemmons, North Carolina is one of many fast-growing communities throughout the country that is hungry for new dining options. On the opposite coast, California-based Habit Burger is an up-and-coming burger chain looking to expand. So, when The Morgan Companies developed a shopping center in Clemmons, Habit Burger approached the developer about opening one of its first locations in the state.

The two struck a deal for a build-to-suit freestanding building for Habit Burger, which is known for its fresh, award-winning “Charburgers.”

Based in Charlotte, Morgan is a full-service commercial real estate firm that has developed, managed and leased more than $1 billion in retail and office assets in markets through-out the Southeast over the last 40 years. Spotting the potential in Clemmons, the developer established the Peace Haven Village shopping center

Trey Morgan, president and CEO of Morgan, says the company developed the shopping center with three outparcels. “Habit Burger approached us and asked if we would be interested in doing a build-to-suit project on the middle outparcel. A build-to-suit had not been in our plans in our original loan for the overall shopping center since we expected to ground lease for that parcel. So we went out looking for financing just for the Habit Burger – not the whole shopping center.”

The developer returned to the bank it had previously worked with — Live Oak Bank, also based in North Carolina. “We had worked with Live Oak on another transaction and found them great to deal with, so we presented this opportunity to them and did the deal.”

Live Oak is a not a traditional bank; it has no physical branches, instead offering a technology-based lending platform. It focuses on lending only to niche industries — including commercial real estate — employing lending teams who have extensive experience and a knowledge of each industry.

Morgan first encountered Live Oak when the developer purchased a building in Cary, North Carolina and struck a leasing deal with a Sheetz gas station and convenience store.

“I honestly didn’t know about Live Oak until they came knocking on the door. But we did one deal. And frankly, the process was great, and Angus McDonald and the underwriters did a great job,” says Morgan. “They are just very professional, have a deal-maker kind of attitude, and are very responsive. I have a lot of kind things to say about the bank.”

He says the fact that Live Oak doesn’t have physical branches is a benefit. “You can establish strong relationships with developers and give access to good product, and you don’t necessarily need a branch network for that. You can have really good relationships, really smart underwriting and a good technology platform, and still achieve all the things you want to achieve. In that respect, it’s a real strength for them.”

Having a bank that understands the business makes deals easier, as lever-aging financing is an important part of commercial real estate projects. Morgan says, “There is not a developer out there who would not say that smart and reasonable debt is not the engine that keeps the development cycle going. While there are some projects that happen on an all-cash basis, the vast majority of development, especially retail, is done in combination with debt and equity. So debt is just a crucial piece for structuring appropriate returns in real estate development.”

Bringing new players into markets is one of the more exciting aspects of commercial real estate. Habit Burger is not the only newcomer to Clemmons. The center is anchored by a Publix grocery store, which is the first in this submarket. The center also includes newcomers Novant Health-GoHealth Urgent Care and Mediterraneo Pizza & Grill.

“It’s always exciting for us to bring new players in because the community loves new retailers, and it’s always a lot of fun bringing retailers in who’ve never been there before because there’s just so much enthusiasm,” says Morgan.

Moving ahead, Morgan looks forward to bringing newcomers to markets around the Southeast as the region continues to boom, especially in North Carolina.

“North Carolina is a very lucky state in the sense that economic growth here continues to be great. We’re certainly seeing a tremendous amount of growth that just continues — almost unabated — in the Charlotte and Re-search Triangle areas. There are a lot of success stories in North Carolina right now. In terms of commercial development, you’re going to see a good steady incline up.”

While the country might see a slow-down in development over the next couple of years, Morgan says North Carolina could buck that trend. “2019 and 2020, frankly, may be a bit more choppy for growth across the country, which may lead to some rough patches for the industry in general. But looking at the Carolinas and specifically those major centers in North Carolina, there are a lot of positive trends still out there.”

Morgan plans to continue developing both smaller projects like Habit Burger and bigger projects like the shopping center behind it. “We plan to continue pursuing our development model, and we would be happy if Live Oak was a big part of that.”

After all, he says, “When you’re an active developer, and you have a bank that makes your life easy and does the things they say they’re going to do, then all you want to do is do more business with them.” ■