CRE Show: Expansion Is on the Menu for Many Restaurants

 ATLANTA, GA (Oct. 8, 2012) – After riding out the lean years of the recession, many restaurants are setting their sights on healthy growth.

The latest episode of “America’s Commercial Real Estate Show” took an in-depth look at the restaurant industry, from leasing strategies to menu makeovers. A panel of experts shared their insights and tips to help restaurateurs navigate the latest challenges and succeed in this ultra-competitive business that — at least for now — seems to be growing.

Pierre Panos

“I see expansion,” said Tony Akly, president of Restaurants Consulting Group Inc. “I think we will see 10 to 15 percent growth every year in the segments of quick service and ‘casual fine-dining’ where the average ticket is $50 to $60 per person.”

Pierre Panos, founder and CEO of QS America, said his company is experiencing “very strong continued demand” and double-digit growth in two of its concepts — Fresh To Order and Brookwood Grill. QS America also owns more than 40 Papa John’s restaurants.

“I think that we will have relatively strong restaurant growth for the next few years,” Panos said of the overall industry.

Robin Allen 

Robin Allen, executive editor of Nation's Restaurant News, cited many expanding brands including Firehouse Subs, Caribou Coffee, Yard House, Chick-fil-A, Smashburger and Five Guys.

But with expansion come challenges. From site selection and leasing to labor costs and legal issues, the restaurant business is no cakewalk.

Ackly, whose company specializes in restaurant design,construction and consulting, says site selection remains hugely important for restaurateurs. He says the main ingredients for success are visibility, access, parking, demographics — and of course, the economics of the leasing deal.

Jonathan Neville

Once restaurateurs begin negotiating for their site, there are even more factors to consider, says Jonathan Neville, a partner at Arnall Golden Gregory LLP who focuses on retail commercial real estate law.

One hot topic is tenant improvements. These are especially important for restaurant tenants who often require many modifications to sites, ranging from installing venting and grease trips to adding parking.

“Tenant improvements right now in restaurants are such an important part of the deal,” Neville said. “It’s important that money gets into the tenant’s hand.”

Neville advises restaurant tenants to make sure their landlords’ requirements for tenant improvements to take place are manageable and reasonable. Also, be sure the lease addresses what happens if the landlord doesn’t keep his commitment to tenant improvements.

“You need a way to offset that against your future rent — and not only just offset the amount of the improvement,” Neville said. “[There] really needs to be the right to offset the tenant improvements coupled withinterest at a rate that is really going to make it sting a little bit for that landlord.”

When negotiating the lease, tenants also may want to ask for a way to enforce such landlord responsibilities as paying for certain utilities and making building repairs.

Restaurateurs might also request SNDA (subordination, non-disturbance and attornment agreement) clauses in their leases. An SNDA protects a tenant by ensuring the lender would honor the lease in the eventthat the landlord goes into foreclosure.

The entire episode featuring the restaurant industry update is available for download at www.CREshow.com.

The next “America’s Commercial Real Estate Show” will be available Oct. 11 and will focus on commercial real estate year-end tax planning.

  

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