What are common incentives to get good tenants to fill your space

Question

We are rehabbing a 25K 3 story building and looking to attract a restaurant go to into the first level. The city is a major help because they were the ones who came to me when I bought the building and they are offering any help they can so I can fill it with a restaurant because its a big part of their plan to revive what used to be a thriving downtown area.

The city has been reaching out to restaurant owners and setting up showings. I just walked through the building with a restaurant group looking to expand and they seemed to have some strong interest.

What are some common incentives I can offer them or future prospects to make it happen?

My initial thoughts were 6 months free rent and $5000 in building out assistance. Is there anything else I can offer or is $5000 a low number.

To put the numbers in perspective - The total project for rehabbing levels is going to be around 500K and the lease for the restaurant could be 4-5K a month so the lease would heavily contribute to the NOI. I have no idea how much their build out would be for the restaurant but I would imagine 150-200k ?

Ronald Rohde · Answer

I think in this enviroment, you're not going to get tenants you want opening a restaurant in a C+ area. So much risk right now.

John McKee · Answer

Don't offer anything until you listen to their needs, otherwise your negotiating with yourself. 5K seems very light on a 200K build out though.  I would think 50K is more in line, but paid as milestones are reached in the build out process.  You have to remember that the 50K is money that they are putting into YOUR property so it should make it easier to release someday.  Also be clear in the lease what the money is being used for and make sure those items stay with the property if the tenant leaves.

Eric Cornwell · Answer

We own and operate restaurants in our portfolio - we are trying to find landlords that understand the current issues related to labor and generating business.  That said - we are seeing offers now that are basically free rent for 3 / NNN's only for 6 / and 1/2 rent for 9 / $20psf TI (5,000 sq.ft.) - this is just to get a "buglight" in the building and help attract tenants.  A restaurant can only operate under certain parameters - so you should understand what your basic revenue size is for the space - i.e. $/seat/yr.  You can want $60K NNN but if the site is only a $600,000/yr operation it wont work... if its a $1.5MM restaurant space, then its great - leave meat on the bone for the operator and take a piece if it hits it out of the park.  My $0.02

Ronald Rohde · Answer

It really depends on the buildout. Floors get destroyed and usually don't carryover to the next tenant. Need to see their scope of work and plans before saying "putting it into my building"

John McKee · Answer

It they use that money to put in a new floor, the odds are when they leave they are not taking that floor with them.  However if they use that money to buy a stove, they may take that with them unless you state in the lease that it stays with the property.

Adam Craig · Answer

I guess I didn't think of the fact that they are putting it into my building but yes I will now be receptive to a higher amount

Adam Craig · Answer

We are not actually opening a restaurant. The first floor space could be used for insurance or retail or just about anything but the city is desperately trying to work with me on getting a restaurant in this lower space and we are trying to do what we can to accommodate since they gave us a $30,000 Grant to improve the space and have been extremely gracious.

This is a borderline  C+ B- area but there is active investment much greater than the amount I am putting into this building going on  around and there are a couple restaurants in there that have been there for decades so it's not prime location by any means but it's certainly not dumpy either. It's downtown area and the city is the county seat and their government buildings everywhere.

We recently leased a vacant restaurant in a nearby city in a so-so area during covid so I am fairly confident this is a better space in a better climate then it was a year ago when we least this one

Adam Craig · Answer

Great insight from the other side!

Does the 20psf seem to change if the location was previously a restaurant compared to an open space that needs everything put in? I was thinking closer to 12psf if the operator brought most of the funding to get the operation going. But again, this is not a prime area, C+ B- location.

What are common incentives to get good tenants to fill your space

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