fully equiped restaurant value determination

10 Replies

looking at a 3 unit commercial property of which 2 are restaurant spaces all 3 are rented on triple net leases. I can go through the deal if needed but my question is on determining and factoring the value of the fixtures for both places. The sale includes ownership of all kitchen equipment as well as bar supplies tables and chairs, the current owner basically has leased out turnkey restaurant spaces. I am having a hard time factoring the fixtures into the deal evaluation. thoughts?

This is a gold mine, move this property to Columbus if you can and I'll buy it in a heartbeat! My client to available restaurant properties is 4:1! Forget value of FF&E look at the CAP rate, if the seller is smart, he would have already leased the restaurant space at a higher than market rate!

I recently worked with an appraiser that uses past auction values in the area to put a value on FF&E.  He is anywhere from 2  to 25 cents on the dollar when compared to new.  

A very successful operator I know buys a lot of his equipment in new construction and renovation build outs from the auctions.  He knows what to buy and what to avoid, but he said that is the main difference that allowed him to be successful in the early days.  

I just saw one auction where a lot of 12 chairs sold for $27. I didn't see them in person, but they looked nice enough and were in use before the restaurant closed.

This of course is in my market, where restaurants seem to open and close like a game of whack-a-mole.

no maybe I should have asked more specifically. I can come up with a value for the equipment, but how or where does that dollar amount get plugged into the deal calculations?

Robert why do you care about FF & E????

If you are buying a center you go by the cap rate and NOI of the center. FF and E usually belongs to the tenants as they purchase that. Now if the landlord owner of the building had failed restaurants and they left equipment in there then maybe landlord provided that equipment as incentive for new tenant to move into the place.

The landlord could be leasing that equipment to the tenant etc.

That should show up in the leases that were signed. 

Old equipment is worth next to nothing. 5 to 10 cents maybe on the dollar. The heavy stuff to move it you practically have to give it away as nobody wants to move it. 

Originally posted by @Robert Churchill :
no maybe I should have asked more specifically. I can come up with a value for the equipment, but how or where does that dollar amount get plugged into the deal calculations?

Allocation of the purchase price is negotiated... buyer and seller have different interests.

the FF&E are all owned by the building owner and he has leased out turnkey restaurant spaces. right down to tables chairs and and wall art. I am probably worrying about the fixtures more than I need to as the numbers work well with a 10.5 cap rate and a 20% cash on cash return.

I would care less about that and what the lease rates are based on ( market, above market, below market). Annual rent increases and amount? Ongoing quarterly/yearly reporting of tenant sales? Personal guarantee? What is liquidity and net worth of the tenant guarantors? Corporate guarantee 1 unit or multiple units? Corporate financials along with personal? You want a complete picture of how their personal financials are going as well as the business to assess risk and chances of success the operator will be able to perform and thrive.

Check restaurant mix for the area. If your tenants for example one is a pizza place and there are 15 in the 2 mile radius than tough to succeed etc.

Regardless if tenant leases are NNN mom and pop operators likely have any extra money above base rent and estimate regular cam payments. So any deferred maintenance of parking lot, roof, etc. would try to get from seller as reserve credit at closing. Big expense items the landlord generally has to amortize over so many years to get tenants to pay and hast to front cost. This is why you get seller to give credit so you do not have to come out of pocket for it.

Agree with above. All that pretty equipment is worth practically nothing.. save for an affixed exhaust/Ansul system. To most operators looking at resto space it's their only big cost savings and that still might need to be reconfigured to their concept. Restaurant tenants more concerned if they're on the hook for roof, rooftop HVAC, parking lot surfacing, striping, etc. I've leased space where landlord repaired/replaced above and we were charged back.. other times lease language stated landlord was responsible 100%. 

Keep in mind dealing with resto tenants is risky because if they get into trouble the landlord will always be the LAST to get paid. Labor, vendors, and taxes will always get paid ahead of LL, usually in that order.