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  • Writer's pictureChris Hatch

The Yellowstone Effect

The Yellowstone Effect is the description of the phenomenon that continues to occur primarily in the states of Montana and Wyoming concerning the valuations of commercial real estate (CRE). There are a lot more “cowboys” that existed than before the time the hit series, Yellowstone debuted. Thank you, Mr. Kevin Costner. As a result, many people want to live in real life in their cowboy fantasy. Some do that by physically locating in the mountains. Others choose to continue to live where they are but purchase cash-flowing CRE properties throughout the mountain states. As of 2020, Montana had a population of 1,084,225 & Wyoming had a population of 576,851*. The supply of retail property is tightly correlated with the relatively small population base therefore resulting in a smaller inventory of available CRE for investors to buy. The end result is that the Yellowstone Effect causes cap rates to remain low in these markets for most asset classes in comparison to many other parts of the U.S.

In the Spring of 2021 my development company, Forza Development was in the midst of building its 5th & 6th Starbucks locations. We had started dialoguing with some of the Starbucks brokers in the states surrounding Utah and suggesting to them we could be a good candidate for their next ground-up Starbucks project if they wanted to give us a shot.

In May 2021 I found myself wandering the endlessly long hallways of the ICSC convention in Las Vegas. The Starbucks broker, David Mitchell, came up to me with a sparkle in his eyes and told me he potentially had something for me to look at. Since we were all together step one would be for me to swing by his booth later that day and meet the Starbucks store development manager for that trade area. I shuffle things around and meet everyone and we were off.

Following the conference, the broker starts feeding us info about a large Arby’s franchisee that has chosen to close down its store in Livingston, MT. I still don’t understand what didn’t work for Arby’s in this location, but I fell in love with the site the first moment I put my eyes on it. Most Yellowstone visitors fly into the Bozeman airport, rent a car, jump on I-90, and head east. They get off at the Livingston, MT exit go through the exit ramp, queue at a traffic light, and face the Arby’s which sits in front of an Albertson’s grocery store. Easy, convenient place for many travelers to stop right in front of them.



In the drive-thru business I can’t reiterate this statement enough CONVENIENCE IS KEY. The more convenient a location is and easier it is for a customer to get into the parking lot the better the tenant will perform in sales volume. This site had a lot going for it.

  1. Located at the freeway on/off ramps

  2. In front of the main grocery store for the trade area

  3. Easy access to the site from the road and located at an intersection with a traffic signal

  4. Sitting on a primary corridor for the town of Livingston and on a major tourist thoroughfare.

We got to work negotiating with Arby’s franchisee and put the building under contract shortly thereafter. After the first turn of the purchase agreement we started working with Starbucks on our deal structure. The major dialogue points were what to do with the building as it was 3,994 square feet and the Starbucks prototype size at the time was 2,400 square feet. The ultimate decision came down that Starbucks was going to occupy the entire building and just have significantly more seating and storage than most stores in the trade area. The storage would come in handy. It is difficult to operate stores in the mountain states from a distribution standpoint as sometimes supplies are not as readily available. We close in November 2021 with a lease fully executed, plans approved with the city, a loan in place, and our capital stack put together.  We get to work on construction right away.

Livingston Starbucks Site Plan
Livingston Starbucks Interior Rendering
Livingston Starbucks Exterior Rendering

It’s a quiet winter with us starting some of our exterior site work and interior demolition on the Arby’s. A lot typically is going on for us during a construction project.  Weekly site walks (often virtually for these out-of-town projects), daily calls with the project superintendents, discussions with the city or utility providers, and coordinating with Starbucks team members and 3rd party consultants. The one thing we were not monitoring during this project was the local media. As part of the process of Starbucks's decision to come to the market and our decision to invest, we disturbed a number of the local residents and one of the local coffee providers. A few local articles were written and then @tunkuv wrote an opinion piece in the WSJ about our efforts.




The late spring, this project went to the top of our daily priority list. The Winter of 2022 was a big snowfall year and this area of Montana was no exception. Then the Spring 2022 weather turned warm very quickly. Flooding concerns started all over throughout the Western US. Our site is located adjacent to the Yellowstone River which is not a small body of water. Many of you may remember seeing large sections of Highway 89 & a handful of bridges being washed away and shown all over regional and national media coverage.


Yellowstone river flooding near house
Image from Bozeman Daily Chronicle

It’s never a good day on any property ownership when you need to start reviewing the elevation of your building and the elevation of flood plains. Fortunately for us the flood water was high, but we were located well above the impacted flood elevations.  We made delivery to Starbucks in mid-June with just some site concrete requirements that had not yet been met. It is normal for us to deliver a building with a couple of punch list items remaining. Concrete isn’t usually on that list, but due to the weather and some concrete shortages, we had not yet been able to pour our concrete.

The next week the road that leads to the concrete plant in Livingston is washed out. Sometimes in development, it is hard to make up all that can go wrong. Suffice it to say if it can go wrong it will go wrong eventually for you. A full manifestation of Murphy’s Law. Starbucks has now taken possession of the building and is working on their buildout. Here we are sitting and wondering how we are going to get concrete to our site and complete our requirements. Eventually, the town gets the road back in functioning shape and we pour concrete in the late summer.

The store opens in September and we hire a top-of-market net lease broker who loves selling in the Mountain States area. John Andreini with CP Partners gets to work on fielding offers. It takes him 90 days to sell the asset and we move it for a cap rate that is 15 bps lower than what we had sold our most recent Salt Lake City DMA Starbucks for. Keep in mind the difference in population in Livingston (under 9,000 within city limits) as compared to Salt Lake City DMA (just under 3M). The fact that the Livingston Starbucks sold for 15 bps lower than the SLC Starbucks is The Yellowstone Effect.


Livingston Starbucks

Aerial View

The store had a phenomenal opening and continues to serve lots of local and regional travelers daily. Funny to see the success of the location after the uproar about Starbucks coming into the community.


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