This post originally appeared on tBL member blog SVN Southland Commercial Blog and is republished with permission. Find out how to syndicate your content with theBrokerList.
Most normal people dream of owning a restaurant or bar. Only those that are crazy actually do! One way to fulfill your dream and keep your sanity is buying a restaurant property and being the landlord. Here are some details of what you may want to look for when choosing a restaurant property:
Location, Location, Location – No matter the price, the restaurant space needs to be where the target consumers. Things to consider include neighborhood, retail zone, interstate exit, etc.
Infrastructure – Restaurants have very unique equipment needs, which are very expensive to install and are not worth removing including Hood Systems with fire suppression system, grease traps, walk in coolers and freezers and sinks (3 compartment, hand, produce). These are all major components of a restaurant and should be considered in a space.
Power – Ensure that the site has enough power to run the equipment that most restaurants require. Some restaurants are assembly plants and don’t have much energy consuming cooking equipment. Make sure you understand the capacity of the power supply since that can greatly add to your conversion cost.
Visibility – The discounted price of a building that is hidden will be made up in required advertising dollars and ultimate vacancy. Make sure your commercial realtor gets you the right deal in a highly visible location.
Parking – Restaurant sales will be limited by the amount of parking that they are able to provide. Don’t forget that employees will also need to park. Of course, adding a drive thru will reduce the number of spaces required since many QSR have 60-70% of their business using the drive thru.
Ingress/Egress – So your commercial realtor found a property with all of the above components at the right price. Do not discount the importance of being able to get in and out of a restaurant property easily. Some properties are easier than others but some are downright challenging. Avoid these at any cost.
After your commercial realtor helps you finish the process of buying a restaurant, you will continue to do your research on what prospective tenants should actually pay for their restaurant lease. If you find that your lease rate will exceed 8.5% of a restaurant’s expected sales, it may be difficult for them to stay in business. Your success is directly tied to your tenant’s success. As a landlord, you must do everything in your power to help your restaurant be successful or you both will lose with turnover and vacancy.
Predicting Success for the Restaurant
Selecting the right tenant is important for the success of your investment. When your commercial realtor brings you prospects, below are some characteristics to look at in trying to predict success.
Experience – Owning a restaurant requires a much needed skill set of 3 characteristics
- Managing the staff (Labor control) including Customer Service
- Menu development and Cost of Goods Sold
- Managing the back office (accounting, vendors, etc)
Creativity – Paying attention to what your prospective tenants have to offer.
- Understand your prospects concept and business plan. If they don’t have one developed, they probably are not ready for your space.
- You should believe in their concept and understand if the area would be accepting of the type of food and price point.
Financial Strength – While we all want a corporate lease, most second generation restaurant buildings will be occupied by smaller restaurant groups or individuals. Avoid those that are undercapitalized. You must ask the difficult questions of how much money they have for their endeavor and get copies of the financial statements. Everyone says they have enough until it comes time to open several months later.
You finished buying a restaurant. You’ve got the perfect tenants. Now, once your tenant opens the doors, go in and enjoy the restaurant experience, knowing that you are part of their success without having to do the dishes.
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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 850-434-7500, or email him at [email protected] You can also follow him on Twitter at @.