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Pacific Coast Business Times: CKE may be leaving Carpinteria

March 04, 2016
Santa Barbara, California – Published 3/4/2016
By Alex Kacik

CKE Restaurants may be two-stepping to Music City.

The parent company of Carl’s Jr. and Hardee’s is considering moving its Carpinteria offices to Nashville, Tennessee.

“We can confirm that we are exploring real estate space for corporate offices in the Nashville area,” a CKE representative told the Business Times. The company declined to answer further questions.

Many have guessed that an out-of-state move was in the works for CKE and its CEO Andy Puzder, who has been outspoken in his criticism of California’s less-than-welcoming business environment. But Puzder has previously hinted at Texas as CKE’s next move.

Fashion Forms left Ventura last year, opting to grow its operations and workforce in the corporate- and income-tax-free state of Texas. While the Lone Star State typically has higher property and sales taxes that make up for it, Texas Gov. Greg Abbott signed into law $3.8 billion in tax cuts for homeowners and businesses through 2017.

With its access to major interstates, Class I rail, river port, zero income tax and pro-business regulatory environment, Tennessee ranks as the 19th best state for business, according to Forbes. California ranks 32nd.

“Things would be much better across our economy if government regulators would back off,” Puzder wrote in his blog.

CKE has been quietly scaling down its Carpinteria footprint while moving some of its employees to its Anaheim offices. At the end of 2013, CKE had about 120 employees at the 88,000-square-foot 6307 Carpinteria Ave. space, or about 20 percent of the office market in the city, according to Radius Commercial Real Estate & Investments’ 2013 year-end market report.

CKE, which was sold in 2013 by private-equity giant Apollo Management to Roark Capital Group, an Atlanta firm specializing in restaurant chains, for a reported $1.6 billion, now has a little less than 100 employees. It occupies around 40,000 square feet of the building, which was backfilled by the electronic components supplier Continental Automotive Systems and the construction software developer Procore. The rapidly expanding Procore, which has grown to about 400 employees, could be a likely suitor for the potential vacancy. CKE’s lease expires next March.

The business campus at 6303-6309 Carpinteria Ave. is owned by Santa Monica-based Montana Avenue Capital Partners, which purchased it in June 2015. It leased more than 46,000 square feet of space since then and is fully leased. The purchase price wasn’t disclosed but the property was listed for $32.5 million.

Carpinteria’s office market has improved drastically from 2015 to 2014 as its vacancy rate dropped from nearly 15 percent to around 1.7 percent year-over-year, according to the Hayes Commercial Group year-end review. Yet, Carpinteria’s small office market is dependent on a handful of large tenants, including CKE, Lynda.com, LinkedIn, Agilent and Procore. If one of those clients moves, it will have a dramatic impact on overall vacancy, according to Hayes.

The 100 CKE employees only comprise 1.3 percent of the 7,521 Carpinteria workers and 0.05 percent of the 205,845 workers in Santa Barbara County, according to the most recent data from the UC Santa Barbara Economic Forecast Project.

The loss of CKE wouldn’t significantly impact the county’s GDP and overall workforce, said Peter Rupert, executive director of the Economic Forecast Project.

“But, if we are starting to see an outflow that is more consistent, then it does start to really matter,” Rupert told the Business Times.

While Deckers Outdoor Brands decided to stay in Goleta, the nonprofit Direct Relief has remained in the region and many tech companies call the tri-county laidback coastal scene home, public officials may have to restructure its business regulations to attract more companies, Rupert said.

“If we want to maintain the tax revenues we get from our businesses, we really do have to rethink our business climate,” he said.

Strict water regulations, the density and housing limitations posed by Measure E and Save Open Space and Agricultural Resources initiatives’ development restrictions are a few examples that can drive businesses out of the region, said Mark Schniepp, director of the California Economic Forecast.

“The region is subject to a lot more local controls that are much more onerous,” he told the Business Times. “It’s the story of two Californias — coastal and inland. They really shape the decision-making on where firms are going to go.”

A 2016 business tax climate study by the Tax Foundation, a conservative-leaning research group, found that California’s businesses face the third-highest state and local business taxes in the country.

The Tax Foundation ranks Tennessee as the 16th most business-friendly state.

CKE is also mulling over moving its St. Louis-based Hardee’s office to Nashville, according to media reports.

In his blog, Puzder claimed that California’s strict business regulations and high taxes have driven companies out of the state and stifled economic growth.

He also noted that minimum wage hikes are leading to more automation. He prefers an earned-income tax credit over minimum wage, a program that supplements incomes of the working poor.

As they earn more, government aid declines, but never to the point where it reduces their total income, Puzder wrote.

Higher wages caused Andrew Firestone of Paso Robles-based Firestone Walker to replace temporary employees with machines that transport kegs and pallets of beer.

“Despite California’s (temperate) climate, in almost all factors you are going to find a better (business) environment somewhere else,” Firestone previously told the Business Times.

Added Rupert, “I think it’s becoming fairly indicative that many people believe there’s a very high cost of doing business not just in Santa Barbara but California as a whole.”

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