Empty Restaurant needs ideas

21 Replies

I had a good fine dining restaurant in a 3500sf space when we purchased the mixed use building (38 residential units upstairs, 3 office/retail and a restaurant on street level). The owner/chef got distracted and we had to evict. It's been 4 years and we've only been occupied for one of those years.

I'm looking for ideas to perhaps change use to create interest and occupancy.

We are in a town with population of just over 10,000, 20 minutes to the state capital (Olympia). Building is on the historic registry. Any ideas for a new concept, dividing up the space or promoting what we have are greatly appreciated. Thanks!

I'm in a similar situation although I bought the building vacant (16k sq ft, restaurant, bar, banquet center). I don't like the restaurant business especially the larger footprint ones although you hate to repurpose with all the coolers, water and possible equipment already there. I think I'm going to break it up into 3 or 4 tenants. The demand in my area seems to be at the 2k-4k sq ft range. We have a good lead with a gym and other possible leads with insurance, financial consultants and possibly even a dentist. The conversion is going to be expensive so I think I'm going to give them heavily discounted lease rate and have them pay for buildout. That way, if they go out of business I'm not out $100k.

Greg, Thanks for your thoughts. Indeed, the thought of pulling out walk-ins and hoods has kept me from going full ahead with a repurpose, hoping someone with some skill will step in to operate a fully functional space. The previous operator put about $70k into remodeling a lounge and cook line. I'm willing to alter the space but concerned about doing it before locking in that first smaller-space tenant.

Since its your building and its been empty for all the time, have you thought about trying to just open your own restaurant and use all the current gear? Its been empty 3 years already, you could first try a "if we build it, they will come approach" kind of cheaply.

You may not end up with a huge revenue generating restaurant, but maybe something that nets you more than the rent from a tenant at least...

Well, here is some out of the box thinking from someone not involved in commercial real estate nor the hospitality industry, but very involved as a patron of restaurants...

First question... is your location good for restaurant traffic and does it have adequate parking? Is the space a great design for the needs of ideal restaurateur? Ask a person in the restaurant industry to critique it and give you their ideas as to how to best market it.

Second... where are you looking for the perfect tenant? Some of our town's best restaurants were established by individuals who were passionate, culinary experts with good business savvy. Some tested their concept with a booth at the farmer's market before venturing into opening a restaurant, some taught at culinary arts schools, some created a restaurant/entertainment venue, some moved their business from a high rent area such as Portland's "The Pearl" to a more affordable rent area such as Vancouver's "Downtown" or "Uptown", some simply offered the city a cuisine that was not offered before. You might try dining around and finding a really good restauranteur who wants to move to a better location. Speak to the folks who run the culinary arts programs in your area. Read up on the restaurant industry and get into the heads of those who are successful. Make your spot be the one they want.

I agree with all the ideas. I'm also not ripping out any restaurant equipment until I get a long term (more than 3 years most likely 5-10) non-restaurant lease signed. There's still a chance I can get a restaurant but the margins are so low in that business. I'm going to have cut my rent in half to allow the restaurant to make money. Turnover is a killer so I want them to be able to survive. Remember, highest and best use. You may have to change the space.

If you do change, can you share how you sold the old equipment and how much you received for it. I'm a little curious if I can get some money back from that. Another idea, I forgot to mention, my management company also suggested I could rent the cooler space for storage to local businesses to keep documents. We have 4 large coolers so they could handle a good amount. Maybe there's a way to keep some of the equipment in place, make some money but rent out the rest of the space to a different tenant. Thanks for all the ideas.

Highest and best use is certainly important to consider. Other than the return on investment, I would factor in what type of business and traffic you want from a community and livability point of view. Some businesses can afford to pay higher rent but detract from rather than add to the character of the neighborhood. You can make a difference and choose a business that will be good for the community as well as good for you.

Just fyi, I grew up in the restaurant business, and then leased restaurants in 3 of my 4 pieces of commercial properties. They are probably the toughest business to make succeed in this country. Something like 6 out of every 10 restaurants that open end up closed within a year. I highly suggest renting to someone that has previous restaurant experience and not some guy fresh out of culinary school.

Could you rent it by the hour/day/week as a commercial kitchen for someone like a food truck or someone cooking their family recipes and then selling at fairs farmers markets etc. ?  Pop up restaurants also rent space for occasional events.

Also, if the restaurant you let in gets a liquor license, make sure you have a ton of liability insurance. Alls it takes is one drunk driver killing someone to end up with a major lawsuit. It may seem like you shouldn't be responsible for that, but jury's wont care.

I was in the restaurant industry as well and had my own restaurant. In the trade for over decade before I got into commercial real estate.

It is true that the restaurant business is one of the toughest out there. The 2 main drivers that affect small restaurants.

1. No fixed food contracts

2. Quality control

With the fixed food contracts the larger guys are guaranteed a certain food cost rate regardless of market conditions. The small guys when things are good live high on the hog and when food costs soar from their suppliers margins become nothing and the owner is in trouble.

With quality control what I mean is not the chefs making the dish right every time. What I am talking about is you put together opening a restaurant from a supplier or suppliers. You like the brands they carry and so do your customers. Sales start to grow and soar. Then you get hit with the silent killer. Your supplier changes some of the items they carry! They have companies constantly pitching them to try cheaper crap for the same price. Tells the supplier they can charge the same to restaurants and make more profit and will not know the difference. It's a bunch of bull.

Customers and the restaurant owners know right away. The problem is if for instance I love a product and contact the company directly. They say to get it I have to order pallets and pallets of it at a time ( see a problem! ). So your consistency and growth is tough as a small operator.

Greg you can forget your dreams of getting a bunch for that equipment. The over hood vents if in the ceiling weigh thousands of pounds and are very expensive to move. You might get a company to take it for free. The other equipment the clearing house restaurant places will buy from you for 10 cents on the dollar to 15 cents and then sell for 25 cents to 40 cents on the dollar to new restaurant owners starting up buying used equipment. If you have endless time you can get a higher price but then have to piece it out. Kind of like asking a junk man to take the whole lot for a low price or putting all these ads off and selling in pieces to get more money. Personally if you go that route get it out in one shot.

With restaurants the grease traps left in a space cause issues. If the grease has hardened up ( 3 years ) without pumping the line the whole grease tap and line might need to be jack hammered up and replaced.

Curtis without driving your area and seeing current demand it would be tough for me to say what is best there. It sounds like you have a big building for such a small town ( 10,000 people ). There might not be enough people there to support a new restaurant. You would have to create a map of the local area and figure out what is missing. Example there is a burger joint, Chinese, Mexican, but hardly any Italian. The last thing you want is an operator to open in your space that wants to do a Chinese type place for example and there are already 3 in the area. That will cause constant couponing and low margins to stay afloat.

Why not get in a commercial tenant rep from one of the big companies?? Even if you do not use them they give reports for free on what best could go in there and maybe ideas you haven't thought of. That's what I would look at for a fresh local perspective.

Thanks for the info on the equipment. I figured it was something like that. We were looking to convert an old bowling alley once. Same thing. It was a good deal if we could get someone to take the equipment out for free. Which tenant rep companies would you recommend? I invest in MN if that matters. I'm currently very happy with our team but am always looking for other referrals. Thanks.

thanks for the input.

Chris, We have considered doing our own restaurant. My wife is experienced as is my building manager. So we have a few people in place, but it would distract strongly from what they both already do well.

While the town is relatively small the area is about 60,000 and is a bedroom community to the state capital (100,000). The space has had some good restaurants.

Greg, we sold a small walk-in and a deep fryer for $5k to a fellow we hoped would take the space but opted for a smaller spot 2 blocks away. I have a couple others who keep asking if/when things come available. I have a good friend who sold out his restaurant via auction. He netted about $25k for everything (kitchen, dining room, etc)

Bob, we rented to an excellent chocolate truffle maker who created a lunch counter with the hopes of finding complimentary vendors who could share the space. The other vendors just never materialized in time to keep the truffles alive.

Really appreciate the other input, it helps to generate creative ideas.

The truffle maker business doesn't usually support physical locations. That's a better online business and remote location whereas where you are not paying storefront per sq ft pricing. That type of thing you are better off renting very cheap warehouse space and creating the product. Then going to cheap events ( guerilla marketing) and handing out free samples. If your product is superior and price is good you will get immediate purchases at the event to offset booth space cost and might even eek out a profit. The real profit becomes from the new customer base generated.

Operators make the mistake of running coupons when opening a business. You just attract the cheap non-loyal customers willing to eat anything to fill up their belly. Much better is to take the risk away from the public and give away free samples. There is no reason then not to try it as they are not out any money. Giving away food to generate sales is much higher return then advertising coupons. You want to gain new customers willing to pay a premium for a product and give repeat business versus a coupon clipper. Coupons are important as they give you the offset 25% but the main 75% of business comes from regulars. I used to do some restaurant consulting of new startups not because I wanted to but because people sought me out. Even when I go eat out at a restaurant I can spot things that can improve operations and profit right away.

I just love commercial real estate as a brokerage transacting and the restaurant business is good money but very long hours. Okay to do in my 20's but not approaching my 40's.

The restaurant is a function of supply and demand.

Greg I do not know of a particular company up there. There are brokerage companies that specifically focus on the restaurant side. One is WE SELL RESTAURANTS. They have connections focused on that space. You can also send your sites to the major chains. You first would go to their main restaurant website. Then go find the corporate link in small usually. Then it takes to corporate site where they have a site location footprint and model. You want to check your space footprint before making the contact.

A colleague of mine retired as Maintenance manager from an Industrial complex & was bored.

He also owned a large warehouse that was bleeding him dry with transient tenants so we all sat around one night tossing out ideas & he decide to approach a couple of the local community colleges. He offered to train technicians with hands on experience using the equipment he had in the facility & he would receive a portion of the tuition the college was charging. He also approached several businesses who sent their techs in for training & they  in turn would supply him with old equipment.

So expanding that though & in light of a recent situation I read about locally why not approach the local community college etc & offer the facility as a culinary school. With any foresight the syllabus could include what you need to learn to run a viable food service business. Something that is rarely taught in any faculty. 

If the college(s) are not receptive there maybe a couple frustrated chefs out there who would enjoy putting a course together & charge enough tuition to cover your o/head.

The training sessions could offer nights when meals are open to the public (at a cost in keeping with covering costs) & if it's anything like a couple of local colleges are doing around here it will be booked for several weeks in advance. In fact one of them has a large dance club book once a month for a combination of dining with a night of dancing like the old days. Then throw in a couple of Charity type Lobster-Fests & you will pack them in.

good luck

Originally posted by @Marcia Maynard :
Highest and best use is certainly important to consider. Other than the return on investment, I would factor in what type of business and traffic you want from a community and livability point of view. Some businesses can afford to pay higher rent but detract from rather than add to the character of the neighborhood. You can make a difference and choose a business that will be good for the community as well as good for you.

Interesting you bring this up. I've been approached twice by companies wanting to take advantage of Washington States new laws on marijuana and open dispensaries. I've also been to a few public meetings on unintended consequences of the law that are devastating neighborhoods and rental homes. We continue to say No to such associations -not to mention it still doesn't have federal sanction which could lead to confiscation of property.

So because I threw out the highest and best use comment, I thought about all the comments since then. In my mind, I already filtered out certain businesses. Maybe it was because of my upbringing, maybe it's pride, However, if we look from a pure money standpoint, I would define highest and best use across my entire portfolio. Meaning, if you rent to a marijuana store and the town hates you because of it, that may affect future acquisitions and getting tenants into multi tenant spaces for fear of you putting a marijuana store right next to theirs. Now if you specialize in that store then that's a different story. It also may affect your interactions with city hall, contractors, etc. Furthermore, what if you had other properties nearby, what would it do for those values. As an extreme example, what if Donald Trump started buying strip malls and putting his name on the side. It may diminish the value of his brand and decrease his other property values. Now let's say you have a possible restaurant at a lower rate than a possible financial consultant. There may be a trade off between lower lease prices for a restaurant that gives you a lot of good will in a town that helps with permits, filling other spaces, and future acquisitions. Where that trade off point is, I don't know. It probably depends on the size of your town, your financial state, and where you are in your real estate empire building.

@Curtis Bidwell Which bedroom community are you in? (Feel free to PM me if you'd prefer.) There are always people interested in starting restaurants or expanding one they have, so it would be good to know about the available space.

FYI, I work with a number of people in the cannabis industry, and you're right to say "no," given that it's a primarily residential mixed-use building, which probably means kids living in the apartments. (For the record, though, although the property and health hazards get the news, the biggest issue I see in the I-502 business is under-capitalization. Most of the real health/property issues come from MMJ businesses, which in WA operate with an unfortunate lack of regulation.)

@Eric Belgau  We are located in Shelton on the corner of First and Railroad.  Certainly appreciate any leads!

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