Many restaurant entrepreneurs want to earn income in every way possible. Not only do they want the profit from their restaurant business but why not the real estate investment as well. While owning restaurant real estate can be a smart strategic play, there are other factors that should be taken into consideration.
Let’s take a restaurant concept that has been around for a while and the owner has grown their concept to 10 locations or 10,000 locations. Their business model is profitable and they desire to grow. They wait a period of time in order to allocate the funds to purchase a building and construct their next location. Let’s assume the land and building cost $1 million and they’re able to secure financing by putting 20% down ($200,000). They also need to purchase the Furniture, Fixtures and Equipment (FF&E) package. Let’s say that is another $300,000 which can be financed as well (let’s assume another 20% or $60,000).
If the restaurant operations profitability is strong enough and their desire is to continue to grow the brand at a faster pace than they can allocate the $260,000, they can consider a build to suit and grow three times faster. A build to suit is where a restaurant owner partners with a developer on a location that works for their concept. The developer buys the land, builds the restaurant and leases it back the restaurateur. The developer sets a lease rate based on their needed rate of return. Depending on how the deal was structured, the restaurant owner would still purchase their FF&E. Instead of parting with $260,000 in cash, now they part with $60,000 and lease their perfectly designed restaurant. This practice is common among most of the national restaurant franchises as a means of sustainable growth.
About Michael Carro – Based in Pensacola, Florida, Michael has extensive commercial real estate experience and has earned many awards for his accomplishments. His passion is with restaurant real estate, and he is the host of The Restaurant Realty Show on News Radio 1620AM. Click here to read his full bio, or if you would like to contact him, you can call him at 850-610-8339, or email him at [email protected] You can also follow him on Twitter at @.