The Restaurateur’s Guide To Locating Space
An insider’s guide to leasing or purchasing restaurant space.
Tom Prakas

Everybody seems to have a specialized niche in brokerage. Whether it is waterfront homes, luxury homes, office space or industrial space, real estate brokers do the best job for clients when they focus and keep up to date on the requirements of a particular type of space. 

Find The Right Broker

Accordingly, if you are going to sell, buy or lease restaurant space, it is best to find a broker who specializes in restaurant brokerage, and has either worked in the business extensively, or preferably, has owned and operated a restaurant or nightclub. Someone who has been an owner knows the back of the house from the front of the house, knows the terminology, and, in the case of a restaurant purchase, can check a profit and loss statement to know if it makes sense. How can you find this specialist? First, go out into the marketplace and find a broker who is doing high-profile restaurant deals. Then interview the broker, just as though you were interviewing someone for a job. After all, this could be one of the biggest investments of your life. Be sure to get their credentials, including how many leases and sales they have closed recently. Remember, just like you must have the right attorney for your needs, you need the right broker. Lastly, a restaurant broker who has been an owner can even advise a restaurateur on the concept, setup, city regulations, licenses and more. Consulting of this kind can be invaluable, especially as part of the real estate transaction.  Restaurant Location Is Key It happens every day. A restaurant owner can end up with the right concept in the wrong place, or the wrong concept in the right place — and wonder what has happened. A good broker can help determine, based on the restaurant type, whether the client needs an outparcel for a freestanding building, an inline space or an end-cap in a shopping center. By examining the demographics of an area, he can advise which side of the street is better, what type of people are around, and determine if it is a night spot or a morning spot. If you buy a donut shop, you don’t want to put it in a nightclub area — you want morning traffic. Whereas, a steak house should be in a totally different area. Physical attributes of the location are important as well. Does the site have good visibility? Is it easy to reach? Is there plenty of parking, or is a valet stand a possibility?  Something else a true restaurant broker can do is alert clients to available locations that are unadvertised specials. He may know 50 proven properties where the owner is ready to sell or a tenant is ready to move or sublease. 

Don’t Do The Deal Yourself

Leases for shopping center restaurant space can be 50 to 60 pages long, filled with numerous clauses to watch out for. A tenant may inadvertently sign a constricting assignment or subletting clause. There might be a kick-out clause buried in the lease which requires 60 days to vacate upon the owner’s written notice — and if you sign it, you have to honor it. Even when you show the lease to an attorney (and always get legal counsel), if they don’t specialize in restaurant sales or leases, they may not catch something. If you deal straight with the owner without a broker, you have to watch out for verbal agreements. For instance, you may think you’re getting free rent starting from the date of occupancy, whereas the owner may intend the free rent to begin from the time of lease signing during buildout. A restaurant broker knows which clauses to look out for. He can help spell out the buildout agreements and free rent. 

Terms Of The Transaction

The longer the lease, the better. It is a mistake to take just a 3-year lease (why think short term?) Sign a 20-year lease, take four 5-year options and lock in your rent (noting inflation clauses). A shorter lease does not offer as much value if you want to sell or vacate. Also watch out for the personal guarantee: if the owner asks for it for all 20 years, that is a bad sign. Remember, always take options, never give them. It usually depends on the success of the property as to whether or not the landlord will do the buildout. If a shopping center in a non-descript area with no traffic is not seeing good numbers, the owner is more likely to help you with the buildout. He wants a traffic builder in his center, and he is hoping it is your restaurant. Then you’ll spend money on advertising to get your patrons there. However, if you have selected a hot area with great traffic already, you won’t have to do as much advertising, but your money will be spent on the buildout and, most likely, on higher rent. 

Buy Or Lease?

Sometimes a lease is a better idea than a purchase. First, land prices are very high. Second, it is okay to buy property if long term property involvement is what you want. But it will require a 20 percent to 25 percent down payment and tie up capital. Do you want to enter the real estate business and still be a tenant? Lots of restaurant owners can’t do both. With a lease, you can run your business and walk away, with no mortgage worries or taxes and insurance accruing.  Another good idea is to lease with an option to buy in 2 to 3 years. You can go in with first and last month’s rent and a security deposit like a normal lease, then buy later if you think you can handle the responsibilities of being a land owner and the location is tried and true for your concept. 

Our Unique Market

Haven’t you heard people say they don’t like living in Florida because there are no definite seasons? Of course we have our own unique seasons...when the snowbirds are here and when they’re not. However, even with our population fluctuation, the Palm Beach, Broward and Miami-Dade County area is ranked as one of the top areas for money spent on dining out, right up there with New York, Los Angeles and Chicago. So a restaurateur may think South Florida will be an ideal place to open. However, there is competition with so many diverse places to eat...which means lots of restaurants vying for those market dollars.

Remember to concentrate on making your concept a winner. Don’t try to be all things to all people, meaning make your restaurant a success without buying the real estate. When you have proven the concept, then you can invest in real estate that makes sense, perhaps a strip center or apartment complex with the profits from your restaurant. Think of where the best location for your business should be — not just where you can own the property.

A restaurant or nightclub will succeed with a smart menu concept, strong management, excellent service and a good location. A good restaurant broker can provide the guidance to buy or lease with confidence. scb

Athan “Tom” Prakas is president/broker of The Prakas Group, Inc. in Boca Raton, Florida. He can be reached at tprakas@prakasgroup.com.


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