There is a trend in the marketplace over the past couple years; landlord's are charging unsustainable rents for restaurant businesses. These trends are followed by an unusually high failure rate, which we're already seeing. Feels a bit like 2007 all over again.
Several clients contacted to sell their restaurant because their landlord increased the rents and/or the CAM by substantial amounts. For example, a restaurant in an A city but a B location had its rent increased from $11,500 a month to $13,700 a month while another restaurant in a C city and a B location had the rent increased from $10,500 to $12,500.
These businesses were already struggling, now they stand little chance of surviving.
In the restaurant business a rent factor of 5-6% was the target, but somehow landlords have it in their mind that a restaurant can make it on 10% rent factor...plus CAM...absolutely a fatal premises.
SIMPLE MATH: if you're leasing a restaurant space that's 2,000 Sq. Ft. and a all-in rent of $10,000 a month. The rule-of-thumb is one needs to sell $166,666 a month in order to make a fair profit. Or said another way, the restaurant needs to generate annually $1,000 of sales per Sq. Ft.! To give one an idea of how challenging that goal is, Chipotle generates about $700 per sq. ft.! Yes a lofty and unrealistic goal for most restaurants.
If you're considering doing a lease, first contact us to protect yourself and second do your math. SellingRestaurants never wants to see its clients get into impossible situaitons.
Mel Jones is one of the premier restaurant brokers in the nation having published hundreds of articles on buying and selling a restaurant and bar business, selling thousands of restaurants in CA., WA and AZ and building one of the most copied business models in the brokerage industry. Mel started SellingRestaurants in 2004 with the one simple concept, give the buyers the information they need to make intelligent buying decisions without being pestered by a broker or hiding information, prepare the business for market by researching key details that make or break deals and educate the buyer on the buying process to create an intelligent buyer. Prior to SellingRestaurants, Mel was a Chief Financial Officer for Universal Music Group, the largest music company in the world. There he participated in more than $11.5 billion of merger and acquisition transactions. He also work for top companies such as Nestle Foods, USA. He hold a Bachelors in Business Administration Finance as well as attened Law School at Gonzaga University. Give Mel a call at 480.274.7000 or e-mail him at [email protected] if you have any questions.