Emerging ConceptsReal Estate

Restaurant Real Estate Opportunities Emerging from COVID-19

While no one, or at least most no one, wants to feel like they are taking advantage of a bad situation, the truth is that some people and businesses will emerge better off post-COVID-19 than before the pandemic left a wasteland for many of us.

In fact, some incredibly successful companies began during recessions when other businesses were closing their doors. Burger King opened its doors for the first time during the demand-driven recession of 1953. Uber, Square, and Airbnb all started during the Great Recession that began in 2007. By 2019, Airbnb was worth $31 billion.

Across the nation, as of May, it was estimated that 100,000-plus businesses permanently closed their doors due to the pandemic—about 2 percent of all small businesses. According to the National Restaurant Association, 3 percent of restaurants are closed, and a heartbreaking 11 percent, or 110,000, could be closed within a month.

There is a small glimmer of hope during this unprecedented crisis. On May 28th, the House passed a bill that offers some leeway on how businesses spend the coveted Paycheck Protection Program (PPP) COVID-19 loans. In addition to giving borrowers more time to use the loan, it would also loosen the restrictions regarding what the money could be used for and extend the deadline for bringing back employees. In essence, it will make it easier for recipients to qualify for forgiveness of the loans. Now, it heads to the Senate.

While the first round of PPP loans that amounted to $349 billion was used up in a mere 13 days, there is still some of the $310 billion in second round loans available. As of May 28, NPR noted that more than $140 billion remains in the coiffeurs.

Back in March, during a White House press conference, President Trump predicted that, with the help of these loans, the restaurant industry would thrive once again. He also noted that it wouldn’t necessarily be with the same owners. “It may not be the same restaurant, it may not be the same ownership, but they’ll be back.”

How reassuring.

What this means is that, in the wake of the pandemic, a massive number of shell restaurants will be up for grabs.

Real Estate Opportunities Post-Pandemic

The post-COVID-19 real estate and business opportunities include prime locations and second-generation restaurants, as well as a market that will morph in favor of tenants. While most restaurants will be focused on the herculean efforts involved in reopening after an extended shutdown, some will be looking to expand or start fresh. What they see that the rest of us can’t even imagine is the number of landlords that will be left with vacant properties, loans coming due, and some that are anxious enough to consider significant deals.

Nation’s Restaurant News quoted Chuck Wells, from real estate firm Kidder Mathews in Phoenix, “We predict upwards of 30% of our local operators will fail immediately or eventually in the full-service arena. However, for those that can grow, some great locations will come available.”

Chipotle Mexican Grill is one such brand that sees expansion on its horizon. The fast-casual chain is not shy in stating that they plan to take advantage of retail locations that do not make it through the pandemic. They expect that as many as 70 percent of their new units will contain a Chipotlane—a drive-thru pickup lane. Of course, with $900 million in cash, and no debt, they are unusually suited to survive and then thrive post-pandemic.

According to Marketplace, Daniel Lebensohn, of the investment firm BH3, reported that buying distressed debt is the foundation of his company. Now, the firm is ready for the opportunities that emerge from the pandemic.

The non-profit news organization also quoted Calvin Schnure, senior economist at Nareit, a worldwide representative voice for REITs and publicly traded real estate companies, “Some of the areas like the hotels and the travel-related…the restaurants, many of those are fairly tight on their cash flow and could be facing a situation where they need a buyer fairly soon.”

While most of these enterprises will wait until the dust settles and regulations and restrictions have been eased, it’s clear that the arrival of a virus with crown-like spikes, and the worldwide shutdown that ensued, has changed the face of the restaurant industry for good.

  • Subscribe to our latest insights


Are you capital raise ready?