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Tuesday morning marked a starchy celebration on Irving Street NW in Columbia Heights: The grand opening of IHOP’s 1,500th location, complete with a dancing pancake, free short stacks of pancakes, and a Washington Monument shaped out of…you get the picture. Inside, IHOP execs visiting from California for the occasion congregated in the back room, while D.C. politicians wore royal blue IHOP cardigans and were presented with commemorative spatulas before digging into their complimentary breakfast.
It’s only fitting that IHOP should be fêting the locals. The owners are, after all, benefiting from $46.9 million in tax increment financing the city earmarked to build the DCUSA shopping complex in 2006. Developer Grid Properties agreed to set aside 15,000 square feet for small, local, minority-owned businesses, which would get an approximately 30 percent discount on rent in those spaces.
Finding those tenants was left up to the non-profit Development Corporation of Columbia Heights. Four years later, exactly two businesses have taken the deal: IHOP, and Señor Chicken, the third location of a Peruvian rotisserie place. It’s not for lack of interest; DCCH’s president and CEO Robert Moore says around 65 small businesses asked about the spaces. Usually because of financing issues, none of them worked out—the closest was another locally owned franchise of Quizno’s. (Meanwhile, some small businesses DCCH helped place in the nearby Tivoli building didn’t make it).
IHOP, on the other hand, kept cruising. Jackson Investment Company, a small residential real estate outfit that had signed a three-store deal with IHOP, first heard about the location in 2007. The partnership of a father and two brothers was an attractive candidate for a number of reasons—African American, Ward 8-based, retired police and military. But what DCCH liked most was the attribute small business incentives are typically set up to avoid: They were part of an international brand that helped the store get off the ground and will make it harder to fail.
“All the new businesses that you see are franchises,” says Moore. “That’s a stronger way, and it’s a safer way for people to invest.”
One morning last week, franchise owner Tyoka Jackson ambles out onto the restaurant floor in a track suit—a habit left over from 12 years in the National Football League—and lowers his considerable bulk onto a cushioned bench. He’d spent most of his time at the Columbia Heights location over the last few weeks, overseeing build-out and training, and was anxious to know how the new store is perceived.
“What’s the buzz?” he asks. “People are saying it’s gonna bring an ‘element.’” Jackson reads the local blogs, which have been pretty much split down the middle on the prospect of a downmarket diner on Irving Street. “When did IHOP become a hot spot for gang members and criminals?” he wonders.
That’s the thing about being a franchise, for better and for worse: People bring their own impressions to it, and for many, it’s just another chain in a complex already bursting with brands. In some ways, the Jacksons’ IHOP enterprise is a small business. They’ve put in the $1 million for construction, made hiring decisions, and will be the ones to lose their shirts if the place fails.
But the Jacksons have a few advantages an independent business could never claim. They get expert business consulting courtesy of the mothership, pooled television advertising, and supplies from a nationwide sourcing cooperative shared with corporate sister Applebees. Recipe development and product design are outsourced to IHOP’s labs in Glendale, Calif.
The last advantage lies in not being an independent business: IHOP is a known quantity.
“Having a sign that says Jackson’s Pancakes is different from putting a sign up that says IHOP,” Jackson explains. “That is a level of comfort for some people.”
Even with all that assistance, Jackson says he couldn’t have afforded market rate rents in DCUSA. Which raises the question: When a sure-fire franchise can qualify for a mandated “small business” set-aside, why would a developer ever go for an actual independent entrepreneur? Ward 1 Councilmember Jim Graham says he’s been trying to lure IHOP since 2002, when he proposed a location at 10th and U streets NW. He doesn’t see a substantive difference between a franchise like the Jacksons’ and something homegrown, and has been entirely sanguine about other chains opening on his turf.
The local business community, predictably, looks at things a little differently. At an October launch party for the new website of non-profit advocacy group Think Local First D.C., Graham put himself in for an awkward moment when—right after D.C. Council Chairman-elect Kwame Brown sang the praises of independents—he talked about how great it was that IHOP would be opening in DCUSA the next month.
That didn’t impress Constantine Stavropoulos, owner of popular hangout spots Open City, Tryst, and the Diner. The successful restaurateur says he never heard of any outreach to established entrepreneurs from DCCH about the DCUSA spot—even though developers are banging down his door to put his next location in their ground-level retail space.
Neither, for that matter, did the Tivoli North Business Association, which represents small businesses north of Park Road. Nor did the Mount Pleasant Business Association. If DCCH was trying to find an excellent non-franchise tenant for that space, it was keeping a pretty good secret.
One of the groups happiest about IHOP’s new location in Columbia Heights? IHOP itself. If the performance of DCUSA’s other anchor tenants is any indication, the Columbia Heights IHOP should also be a high performer, which feeds back into the corporate coffers. On top of a $40,000 franchise fee, 4.5 percent of Jackson’s net sales goes straight to Glendale (he pays another 3 percent for regional advertising).
On Monday, CEO Jean Birch sits drinking coffee at a corner booth with Patrick Lenow, communications director for IHOP’s parent company, DineEquity Inc. Corporate executives don’t always attend store openings, but the 1,500th was a special occasion.
“This is a big milestone,” Birch says. “We are the 20th largest restaurant chain in the country. It’s a big deal to us.”
Though it’s up to the franchisee to find financing for each new store, IHOP headquarters helps along the way, and signs off on each location. Birch says getting a set-aside rent discount was “fairly unique” for her franchises. It’s fairly unique for the District, too—none of the relevant government agencies could think of another instance where a franchise had received a small business incentive. Typically, franchises don’t qualify as Certified Business Enterprises, the designation that gets them preferential treatment on many government contracts and incentive programs.
To listen to everyone involved in the IHOP deal, taking a chance on an independent operator would be an insane risk for a developer. To prove it, Lenow pages through the laminated menu, pointing out some of their regional specials, the relatively low-calorie Simple & Fit menu, and the mixed beef-and-bacon burgers.
“Would an individual entrepreneur bring that same creativity?” Lenow asks, rhetorically. “Trial-and-error is very expensive.”
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Photos by Darrow Montgomery