Restaurateurs Should Look for Similar Site When Leasing

November 11, 2009
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Although there is considerable retail space on the market today, many of them prime locations, the smart restaurant tenant will look for space whose previous tenant was also a restaurant, and where appropriate fixtures are already in place, says Lewis B. Kaye, chief executive officer of MLBKaye International Realty, Inc.

“Not only are restaurants particularly capital intensive, but the fixtures are unusually specific to only one kind of tenant—that is, restaurants,” notes Kaye. “Thus, for example, when stationers or drug stores go out of business, they don’t leave a lot of built-ins that are appropriate for a restaurant, obviously. But when a restaurant closes up, it leaves behind all kinds of equipment that would be very expensive for the landlord to remove—and, more importantly, would be very expensive for the new restaurant tenant to duplicate,” such as large ovens and refrigerator systems.

Most of the restaurants looking at sites today are chains, according to Kaye. Although there are lots of tenants looking to rent small space, it is difficult for start-ups to get financing, he adds. “By contrast, most of the restaurant chains have cash, because it’s a cash-intensive business. In that regard, restaurants are usually in a better financial position than other retailers, and so are better prepared to move quickly on good availability.”

For example, the property broker reports that his firm got 105 calls in three months, almost all of them restaurants, when the firm listed a location available in Manhattan. And, that one was typical. “The previous tenant was a restaurant that had to go out of business, and all of the necessary capital improvements were in place,” Kaye adds. It was also typical because the site had an excellent basement space, and restaurants don’t usually work well without a basement for storage space.