Lease amounts per restaurant revenue?

Question

Mike L. · Answer

It would be best if the rent and triple net fees are less than 10% of the restaurant's revenues.  If they are spending more than 10% on rent and NNN, then they may be in trouble.

That's our guideline here in the Inland Empire area of Southern California.  It may vary in other areas.

Joel Owens · Answer

Yeah 10% is the number. After food and labor is added in the numbers get pretty tight. Especially is the case for mom and pop concepts that do not have FFC contracts. Those are usually with volume type regional and national chain where say the price of chicken is guaranteed between a certain price a pound.

The little guys who order from distributors get squeezed without the FFC's and costs go up.

8% rent to sales ratio is the sweet spot. 10% is the max. If I see 12% and above there is usually a re-trade down from rent or a going dark with the tenant in the future.

Have to know those sales on those mom and pop tenants. it is crucial. If you can't get sales  look at building with dirt value versus what is being paid for the property. Look at existing rents and see if inline with the market, above, or below.

If below you might can talk the next tenant into doing their own TI's for below market lease rate. If the existing tenant does not disclose store sales and rent is higher than market you have to write down the lease value and base your offer on that.

Mark Jones · Answer

I used the same formula in Oklahoma. You don't want to burden your tenant out of business.

Lease amounts per restaurant revenue?

Most Popular Reply