Has anyone ever invested in Restaurants?

18 Replies

Just curious. I was wondering how restaurants decided what areas to move to and how. And specifically how to attract restauranteurs (even chain ones) into an area.

I'm not an expert on that end, I just owned 6 of them :) The franchisor has different models and demographics they look for. The brokers that are looking for spaces are supposed to help match the existing demographics with the concept's target demographics. Not sure if that helps, feel free to direct message me if I can help any further ...

Michael

We have leased to several restaurants- both local one-offs and national chains. Most of these deals were brought in by the tenant's brokers. Usually the restaurants make the brokers run around town to scout for sites based on their client's criteria. It is rare in our experience to deal direct, but we have done so through networking. Hope it helps  

Let me put this in another way:

I live in an incredibly up awesome developing/majorly developed area. (riverview Florida, a suburb of Tampa).

I have 2 clients running pro formas to build up subdivisions here. It's AWESOME.

What this area is desparate for right now are restaurants. Family dining/moderately upscale. I can link demographics on the area, show you how many people are flooding here/jobs are coming here in recent years and continuing forward. We have two competing movie theaters being built... and the only plans to go alongside them are fast food?

Chilis/ longhorns esque. There is actually a running joke on social media anytime someone posts 'what is being built at X location' the responses are immediately 'longhorns steakhouse finally!' followed by 'nope its a target!'

What is one thing everyone I sell homes to tells me? I wish there were more options to eat. 

How can I communicate, possibly with one of you, that this is a great opportunity, and you should at least look into it?

Alternatively, show me why it's a not ready yet. I am genuinely curious.

Get a marketing study done as part of the pro forma. It should detail the demographics and competition. Include it in the sells package for the restaurants. Maybe even add a few photos of waiting lines at their competitors on a typical Friday night. Many chains look a lot into traffic counts and "rooftops" within a specified distance. Another factor will be whether it is anchored by a well-known name, such as Wal-Mart or Lowes to give it some assurance of long-term traffic.

What type of marketing study? 

And in this area it would be more of a lack of competition. We have all flavors of fast fried food, an applebees, beef o bradys, and village inn.

Big name anchors are doable, especially if grocery stores count?

I didn't see the response until now. I'll have to check my notification settings.

The marketing study would be pretty generic since you don't know what type of specific brand would occupy the location. If you want to market to a specific brand, you could have it tailored to their demographic. I know In-N-Out pretty much just looks for roof tops within a specific radius. They don't even look at competition because there is so much brand loyalty. But traffic counts, people counts, and I would want to show some sort of index of places to eat vs. population, and then compare it to other areas. That could be a good selling point. It's not an exact science, but it should reflect solid, real data.

in n out is local - hasnt hit NYC yet but it seems to be trying in LI.

people seem to like non-chain restaurants - a more selective experience in other words - dunno but there are restaurant owners who want a second location.

@Ryan McGowan

This area and (me in particular on date night) needs something at least chili's esque as far as quality/food type. I'd personally prefer longhorns/outback.

We have two movie theaters (stand alone) going in... and the only announced restaurants going in with them are zaxbys and dunkin donuts.  It doesn't make sense to me that movie theaters would want to go in but not a real restaurant?

Is a feasibility study something I can put together with MLS and public data and submit to groups? I'm honestly just trying to get more dining options for myself here, the ability to help them buy a lot to build on is secondary.

A feasibility study is too detailed to get a tenant or land lease. That would be going into profit and loss based on a business plan, with labor costs, food costs, insurance, etc. The market study covers a wider umbrella describing a market in general.

I was thinking you had a building or land, and were looking for a restaurant to occupy it. I would talk to the property owners and mention that they should market their property for a restaurant, and you can help them do it. If they have land that is zoned for restaurants, then they will want to get entitlements at the least. Most restaurant owners are in the business of food service, not real estate development. If a restaurant is going to be built, it's going to start with a property owner wanting to build out their land.

Let's assume I have a property, and I want to get a restaurant on it. I would start with getting planning approval for developing the site. With that process, I'll have some renderings made, or at the least a colored site plan showing all the landscaping and units that will go on it. I would have that rendering/colored site plan printed on a sign, on the lot, with a description, available sq. ft., and a big, bold phone number. The rendering should take up almost the entire sign. The bigger the better.

Put that rendering on the cover of a 3-5 page brochure. Put the market research in there, a map showing the adjacent places that attract traffic, how far the competition is, photos of the theater, and anything else that motivates a potential tenant. If there is interest, get them to sign an NOI with the lease terms. The NOIs can be used to get investors to build the property.

Originally posted by @Devon Garbus :

Just curious. I was wondering how restaurants decided what areas to move to and how. And specifically how to attract restauranteurs (even chain ones) into an area.

 These have the HIGHEST failure rates of  all businesses - - CAVEATE EMPTOR.

@Ryan McGowan Thanks for the input! I honestly posted originally as a resident of the area who wants to get a half decent steak without driving 30 minutes. 

As an RE professional I can dig up some land and work up that type of marketing on it. Thank you!

Out of all NNN restaurants go in and out a lot. Biggest mistake is owners think they can open up and all this business will wash over them like money falling from the sky.

It doesn't work that way. You have to have excellent food with an awesome staff from the  store manager all the way down to the bathroom cleaner. You have to be consistent because while everyone needs to eat to survive they do not have to eat at YOUR establishment to perform that function. They can do it at a bunch of other locations.

What a customer will accept for a dining experience depends on what they are spending and expectation of quality of food and service. If I go through a drive thru at Taco Bell I expect the food to be correct and that's it. If I go to Ruth's Chris it better be perfect for that kind of money or they will know about it instantly if standards are not being met.

I was in that business over a decade in all facets so I know more than most about that business. People wanted me to consult for opening of the businesses etc. but I didn't want to travel around and do that all the time. When i go out to eat I can probably spot 10 things walking in that business is doing incorrectly or could improve upon. It's just something you notice when you know how operationally things are supposed to be done.

Before spending a bunch of money on renderings and all of that people need to get the basics first. As a landowner call around to these real estate departments and see who would be interested in the site. A sit down restaurant usually brings more rent than a fast food place ( think Longhorn versus Taco Bell ) but also requires more land.

Also at play is WHO will want the land. A Mcdonald's or a Chick Fil A trade at crazy cap rates such as a 4 to 5 cap. So you could have a higher sales price NNN for a smaller piece of land.

The rendering thing I have seen owners spend all this money before and stick an expensive sign on the road not even knowing what possible business would be the highest and best use of their land. Instead of calling or getting a professional for consulatation they start spending all of this money. The STATE of the land makes a difference as well. If you are selling the raw land then you tend to get less money. Some land bank investors will buy right away and sit on the property until it is prime for development. Next level up is developers who will buy the land scraped or unscraped. Some unless the land is ready to go will not put in the work. Some will take it as-is for a reduced price and more upside to them.

So really for an owner of the land there has to be a long conversation with a commercial land broker about what the objectives are. Quick sale to land banker, sell to developer, partner with the developer, or develop themselves and hold the income stream or sell off after developed.   

Joel, I mentioned the renderings as part of the entitlements. That is to say the architect should be considering highest and best use from day one.

I don't think he wants to run a restaurant. He just wants to get the ball rolling on getting one in, and be a part of the process. Ideally, a successful restaurant operator would be tenant, and they'd sign a 10 year lease or more. For them, they'll just be scaling up.

Also, signs are cheap and just used test the waters and see what kind of preleases they can get. The rendering may cost 1000, and the sign 500 to 1000. The entitlements, however, may cost 10s of thousands.

Once there's interest, things can be adapted to fit whatever tenants want, for instance combining two pads with 2000sf restaurants into one pad for a 4500sf restaurant. Then proceed with entitlements. Or, keep the entitlements flexible with land lease pads. That's assuming it's a strip center, of course.

Biggest thing with land is just seeing if it is as valuable as everyone thinks it is.

I would glean so much information talking to real estate department heads for the region for various types of businesses.

Typically for a corner pharmacy pays the most, followed by national gas stations, then national banks, dollar stores and restaurants will not typically pay corner money. They want to be close or have an interconnecting road for access so they get the corner traffic without dropping the coin.

All I am saying is before any money is spent make some calls first.