Own the ground
Do you own what the business runs on?
Stakeholders in one room for days requires a building. Leasing it makes the method a cost. Owning it makes the method an asset. So PropCo is designed to hold the property and OpCo to run the programs on it, with the property earning on the days no session runs. We have not bought a building yet, which is why this cell is marked the way it is.
What the practice requires
- PropCo buys and holds land and buildings, financed on the research horizon rather than a fund's exit clock. It leases to OpCo at market rate.
- OpCo carries staff, labs and programs, and pays rent. Occupancy becomes a line item instead of overhead.
- Non-program days are sold. Offsites, training, retreats, convenings. Utilisation is a tracked metric.
- Long-horizon capital is secured against the property, so the downside does not rest on programming.
The precedent
- Harry Sonneborn's insight at McDonald's was that the durable business sat in the land beneath the restaurants.
- McDonald's Franchise Realty Corp. was formed to hold it.
- The separation of property from operations has outlasted every menu decision since.
- The often-quoted line about being in the real estate business rather than the hamburger business comes from the 2016 film The Founder, not the record. What lasted was the structure.
Real, Win, Worth It
- This cell also carries the business case, because owning the base and having a base worth owning are the same question asked twice.
- Real. Is the need real, and is there a market that will pay for it?
- Win. Can we win it? Do we have an edge somebody else would have to buy or build?
- Worth It. Is the return worth the risk, on the horizon we have stated?
- A venture that fails Real gets closed. One that fails Win gets a different owner. One that fails Worth It gets a smaller scope or a longer clock.
Where it goes wrong
- Long-dated operating obligations against short-dated revenue. Renting the thing you depend on.
- Treating a campus as a brand expense rather than an asset with a utilisation number.
- Collateral that is described but not held.
Measures
- Real, Win, Worth It scored and written down before capital commits.
- Property equity as a share of invested capital.
- OpCo rent coverage ratio.
- Non-program utilisation. Days let, and revenue per available day.
- Debt service coverage at PropCo.
- Program cost with occupancy included, per participant-day.
Three cases
These cases come from the public record: settlements, filings, testimony and the companies' own reporting. Citations are being attached case by case. Good, bad and ugly describe one decision against this one question, not the company as a whole.
McDonald's Franchise Realty Corp.
A decision to hold the land under the operating business. It turned a franchising company into a property company with a restaurant tenant.
Leased, not owned
WeWork carried decades of lease obligations against monthly revenue. It held the risk of ownership without ever holding the asset, and the bankruptcy that followed came from a valuation the business itself never earned.
FTX and the unsaid collateral
A $32 billion exchange collapsed when it emerged customer deposits had been lent to a hedge fund controlled by the founder. Assets described to counterparties could not be produced.
How this one is marked
Green means we have the evidence and it carries a date. Yellow means someone owns the gap and there is a date to close it. Red stops the work until it clears. Early work sits at yellow for a long while, and we mark it that way.