Know where your restaurant is going, and how it will get there

Las Vegas’ economy is rebounding, which means more business owners and entrepreneurs are on the prowl for new locations. This is especially true for restaurateurs.

Good restaurant locations share traits with other types of prime commercial real estate — good visibility, easy access, high traffic, strong demographics, lots of residential property nearby, a large daytime population, synergy with other restaurants and retailers and nearby traffic generators such as malls, office complexes or hospitals.

Many restaurant operators like to be near other successful restaurants “since it shows that the trade area has a track record for supporting the sales necessary to be successful,” said Kelly Bland, senior vice president and principal of NAI Alliance, a commercial real estate company.

Having a cluster of restaurants also creates a destination area for people looking to eat out.

“They may not know where exactly they’ll eat until they get to the district and then decide from the many options available” Bland said.

What should restaurateurs look for in a location? And what should they do when they find good space?

Industry experts offered their advice.

• • •

Running the numbers

• “The first responsibility an operator has is to do a pro forma based on the occupancy costs, including base rent, common area charges, real estate taxes, insurance, loading dock charges, etc. If the concept cannot make the numbers work, it doesn’t matter how good the location might be. For example, in some bedroom communities, the heavy traffic will only be on weekends. In a community filled with college students, a fine-dining restaurant won’t work except for parents’ visiting day. If the concept does not resonate with the local area population or fill a lifestyle need, it will not succeed.”

— Veteran restaurant consultant Arlene Spiegel, president of Arlene Spiegel & Associates in New York

• “Look at the real cost of the rent as a percentage of the sales volume anticipated for that location. This percentage should be incorporated in the lease agreement in case traffic falls or is not what was anticipated.”

— John Andrews-Anagnostaras, principal of Landmark Design Inc. in Las Vegas

• “First and most critical is run your pro forma — find your break-even point — prior to signing for any commercial space. I can do this by plugging in comparable numbers of rents, per month, per period or per annum. Run the numbers conservatively, average and optimistically. Know your walk-away number prior to doing any walk-through of a site. If you don’t know how, hire someone who does. Share your number with the real estate broker.”

— Rudy Miick, founder and president of Miick Associates, a food-service consultancy in Boulder, Colo.

• • •

Choosing a space

• “Visibility is always better than hidden; more parking is better than less; (and) a great landlord views a tenant as a partner. A bad landlord can make your life hell.”

— Chase Leblanc, a hospitality management consultant in Golden, Colo.

• “Many restaurant operators look for second-generation restaurant spaces where the previous tenant has already installed many of the requirements for a restaurant. This helps keep the remodeling costs down, as opposed to configuring a restaurant from a regular retail space.”

— Bland

• “If your concept is breakfast, be on the side of traffic moving in your direction, not across the street. If you’re a bar or evening-dominant, be on the side of the street headed ‘home.’ Be at the ‘end’ of the block instead of the beginning, and be on a corner, ideally.”

— Miick

• “New grease and old sewer lines make bad bedfellows.”

— Leblanc

• “HVAC needs to be able to take the best and worst a kitchen can toss out.”

— Leblanc

• “Money is made from the dining room or carry-out space, not the kitchen. Money is made by rolling your inventory, not storing inventory.”

— Miick

• • •

Negotiating a lease

• “Landlords know that restaurants are the riskiest of tenants and, unless they’re very desperate, will not give concessions beyond maybe some free rent. They may give a bit more for a corporate lease like McDonald’s or Cheesecake Factory but not for a franchisee or a mom and pop, no matter how cute they are. And they’re going to make sure that everything is paid for in your space. They don’t want a bunch of liens filed on their space.”

— Las Vegas architect Howard Perlman, principal of the Perlman Design Group

• When negotiating with landlords, restaurant operators “could and should ask for free rent during build-out time, typically four to six months; tenant improvement dollars the landlord may contribute to infrastructure not related to restaurant design/equipment; and prominent signage.”

— Spiegel

• “You want an escape clause, a buyout if for any reason you need out of your lease. Get a first right of refusal on joining space and/or in the event of a sale of the property; get a gross lease if possible.” If not, define the triple net expenses (insurance, common area maintenance and taxes). “Do not pay more than industry norms on the percentage of gross sales. If possible, be able to sublet.”

— Miick

• The build-out allowance provided by a landlord is key “because some of the mechanical systems such as air conditioning, kitchen exhaust/makeup air, plumbing and waterproofing of floors might be extraordinarily expensive.”

— Andrews-Anagnostaras

Tags: The Sunday
Business

Share