Over 5,000 restaurants across the United States closed their doors in the past 12 months. Most of them were independents, not chains. After you get over mourning the demise of your favorite Friday night spot, thoughts turn to how are we going to sell these properties?
The statistics from this week’s news shouldn’t surprise anyone. Early on in the recession Americans started cutting back on their dining out. Some cut out restaurant meals completely to save money. Those those who still ate out regularly moved to less expensive joints. Fine dining became a luxury for most Americans the past few years.
Restaurants cut expenses and adapted to the new economy (blue plate specials and coupons), utilized creative marketing techniques (Facebook and Groupon) or hung on for dear life.
Now it seems like in 2009-2010 that line snapped. With no more ways to cut costs and record level unemployment numbers thinning their dining crowds to a trickle, many independent restauranteurs threw in the towel.
In my area, there’s one restaurant that has changed hands three times in the past four years. Driving by today it looked dark at lunchtime, and someone commented to me that the location must be the kiss of death if it’s closed again.
(Question: are some locations truly jinxed or just so poor nothing could succeed there? This particular location is the middle of a small strip mall with frontage on a very busy road. It’s got easy access and visibility. What gives? Just three owners in a row who don’t know what they’re doing? Or something more?)
How do you sell this thing?
If you’re a real estate broker and you list a closed restaurant, what’s the best way to sell or market it? Obviously the best and easiest solution is to find another restauranteur (or chef who always wanted to own his own place — see prior paragraph for that downside). If the kitchen and equipment are in good working order, perhaps you can find someone who just wants to step into the prior owner’s shoes and turn the business around. That’s your dream deal.
If leased equipment has been returned and the place is a mess, one solution is to clean it out and perhaps even gut it. Make it a plain vanilla shell so that any business could see themselves there, not just as a restaurant. If it’s got a good location, plenty of parking, what else could use the building? What is the location best suited for?
Survey the neighborhood
What is missing in the neighborhood? Do a survey of local businesses and see where the gaps are. Ask people what they’d like to see in the spot. What kind of retail or services are out of the area, that they have to drive to find? What do locals wish was there?
I had a closed restaurant property with a large vacant lot that was next to a retirement development. The building itself probably should be torn down, so I was marketing a location really. Locals had to drive several miles to go food shopping. I was convinced a small grocer should move in and would make it there. There was no grocery store for miles!
Unfortunately, the large chains decided that the demographics would not support their stores. And the smaller local chains I approached were struggling themselves, and not in expansion mode. I couldn’t sell a single grocery store on the idea.
I surveyed the residents of the retirement community and found they wanted a dollar store, a crafts store, and a pharmacy. I tried approaching these kinds of developers and I got a dollar store interested. Unfortunately they didn’t want my lot and built a dollar store next door on a lot another broker had listed! It was a good idea, but didn’t sell my property.
Selling a closed restaurant is not easy, especially with financing these days. Even when you find a buyer, if it’s another entrepreneur who wants to open a restaurant, it’s going to be an uphill battle to get him to the closing table.
If the seller can handle the risk, perhaps the only way for the buyer to take over would be with seller financing — part of the deal or even the whole transaction. That only works if he isn’t so far into debt that that he’s underwater.
It’s certainly a challenge, but many real estate brokers in 2010 and 2011 had better learn how to handle these kinds of properties. There’s going to be more of them coming on the market in the immediate future.
Joe Loomer
July 30, 2010 at 7:20 am
There is a location in my town that has also had three separate owners in recent years, and just acquired it’s fourth. All restaraunts, all failed. One – The Upper Crust – was a fantastic pizza joint that was consistently the “Choice of the Town” in the local paper. I think it’s a combination of business sense and the things you state. If the traffic count isn’t there, if people can’t even see your store or park easily, you’re toast.
In another area – a national franchise shut down, only to be gobbled up and re-opened as a sports-pub. It is doing extremely well.
Navy Chief, Navy Pride
Erica Ramus
July 30, 2010 at 6:00 pm
Joe–I confirmed it today. Owner #3 has shut down in that location. What a shame.
BawldGuy
July 30, 2010 at 10:03 am
Erica, I don’t envy you a bit. Been there, done that with residential income property, in previous bad times. What outsiders think is ‘creative’ doesn’t make the ‘A’ list of the real creativity pros like you generate.
We’ve all had those ‘D’oh! Why didn’t I think of that?’ moments when a situation such as yours is suddenly and spectacularly turned around by a new tenant/business. A recent example in my neighborhood was a vacant, failed Taco Bell. It’d been vacant for literally over two years. In my opinion it was the location, as it was in the middle of a street with decent traffic, but if you were on the wrong side, you had to hang a u-turn and come back. So what do ya think has finally replaced Taco Bell and is doing incredibly well?
A taco shop! But a typical San Diego taco shop, which means just about everything they make is wicked good. In other words, the anti-Taco Bell. It’s been almost six months now, and it’s still ‘the’ neighborhood taco shop destination. Who knew?
Erica Ramus
July 30, 2010 at 6:02 pm
That just shows that people WILL go out of their way for wicked good food, or service, or whatever you produce. If it’s a tough destination, make it worth their while!
Property Marbella
July 31, 2010 at 12:10 am
In finances crisis are bars and restaurants the first who close down. Over here in Spain is the situation the same, your local favourite is one day gone and a new one try with a “new” concept and 3-4 months later a new one…
mike
July 31, 2010 at 6:35 pm
I miss Pizzaria Uno.
Beth Anne Grib
August 5, 2010 at 12:15 pm
I don’t know of any lender who wants to get within reach of a buyer trying to buy a restaurant. This is one of the toughest commodities to sell right now because the lenders know that restaurants are going under and having a tough time of it and they are either not permitted to take that risk due to stringent regulations or just simply refuse to do so. We have contacted almost 200 retailers within the last 6 months for new market areas and they all say …”Call back in 6 months”. Everyone’s waiting for that evading “light at the end of the #CRE tunnel”