CapitalReal Estate

Landlords as Financial Partners

2015 was the first year, according to the US Department of Commerce, that restaurants surpassed food sold at grocery stores. It appears the days when 60 percent of food sales happened in the grocery aisle has, for now, gone the way of Blockbuster and Borders. Restaurants have, in fact, done better than any other retail category since the recession. Facts like these and the decline in retail has prompted landlords to woo potential restaurateurs by putting a stake in the game and becoming investors in their own lessees.  

Possibilities

Emerging from this changing economic environment is the unusual partnership of landlord and restaurateur. It is manifesting in several forms including the following:

  • Landlords are providing the build-out costs in exchange for an ownership stake in the restaurant.
  • Property owners are maintaining low base rents in exchange for equity.
  • Landlords are partnering with chefs and taking responsibility for part of the rent as well as other costs associated with restaurants.
  • Short-term partnerships are emerging in which the landlord helps the new restaurateur get their start, taking an equity share which can be bought back once they have their footing in a few years.
  • Landlords are bankrolling the restaurant becoming actual 50/50 partners.
  • Success has created landlord and restaurateurs that create additional venues together using third-party landlord situations.

For restaurants that are just emerging and do not have the back-up of a national chain to count on for capital, this may very well be a lucrative and inventive way to ease the initial cost required to open the doors.

 

Drawbacks

One concern in these types of deals is the question regarding what transpires should the restaurant not make the long haul or begin to lose money. Unfortunately, new independent restaurants are known for a high rate of failure and landlords are all too aware of the potential risks involved. A conflict of interest may result. This potential landmine should be laid out on the table in advance and a resolution discussed should the worst case scenario transpire.

 

Making Your Case

Landlords are looking for restaurateurs that are teaming with hot chefs, know the growing trends and have a compelling concept. They are looking for a venue that can excite the local diners and start a buzz. They want to see tweets and posts about the upcoming opening far in advance of the actual debut. They are looking for the restaurant to be the anchor that draws the crowds in.

If you’re considering approaching a landlord with a business partnership in mind, make sure you have these “wants” in mind so that you can address them in the initial pitch. Like many pitches, it’s in the first 30 seconds that you often get their attention or lose their interest. Establish your credibility by doing your research. What does the local market already have and what are its needs? What is the competition? What is your market? Know your vision, menu, décor and target audience, and highlight what will make you stand out from the other 30 restaurants.

A partnership with your landlord may be just the extra financial support you need in order to launch. Spend time researching your potential investor and then let them know why yours is the restaurant they want.

 

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