The ongoing difficulties of the restaurant operating environment are paving the way for some movement in the market. While the high costs of construction are apt to dissuade restaurant companies from developing new projects, growth through acquisition is likely to rise. Potential sellers who have grown weary of pandemic-era supply chain problems, ongoing inflation and labor shortages may be more open to negotiation -- perhaps providing financing options to seasoned, qualified buyers eager to expand but balking at bank financing amid rising interest rates. In the third quarter of this year, the median selling price of a restaurant dropped nearly 7 percent over the previous quarter. But as a recent article by the CEO of the restaurant brokerage We Sell Restaurants noted, that decline reflects a decrease in restaurant asking prices in recent months. Buyers are still paying close to asking price. If you’re in the market to sell, that makes it especially important to price your business well in light of fluctuating economic conditions. Have a restaurant business broker conduct a valuation of your business so you have an indication of what your business is worth in the current market. Ensure you have the past three years of your restaurant’s income, balance sheet and cash flow statements – and be transparent about how your business has weathered the pandemic. Have a carefully vetted business plan, particularly if you’re seeking possible seller financing. Finally, keep your talks confidential so as to keep current staff from becoming disinterested in providing great service (or guests from disengaging from you). Both can impact sales and discourage a potential buyer from completing a sale. Buyers looking for opportunities to expand through acquisition will need a thorough understanding of what they need to maximize efficiency. That includes what construction will be required to bring the business in line with the needs that emerged during the pandemic. There is likely a lot of inventory on the market that will need a revamp to accommodate the changes to restaurant footprints, layouts and features that will be necessary going forward.
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Whether you want to remodel or sell Restaurant real estate looks a lot different than it did a couple of years ago. As operators have accommodated more streams of off-premise business, dining rooms have decreased in size, pick-up lanes and windows have been created both indoors and out, and even kitchens have changed shape to adapt to shifting consumer habits. The added pressures of inflation and a potential recession are making this a time when every square foot of a restaurant’s real estate footprint needs to earn its keep. So how do you ensure you’re making best use of your space? In a recent webcast from Restaurant Finance Monitor entitled “Creating Enterprise Value Through Real Estate,” three restaurant industry experts in investment banking, restaurant portfolio optimization and restaurant law spoke about how to navigate through the current environment. They said that now is an important time to give your real estate strategy a reality check and identify any opportunities you have to operate more efficiently and generate greater value from your property. “You should do a deep dive into variables like rents relative to market, occupancy costs as a percentage of sales and new restaurant growth prospects,” said Joe McKeska, senior managing director and leader of the restaurant industry practice at A&G Real Estate Partners. Once you do that, you may discover that you could use a portion of your dining room space for a more profitable purpose and you should get going with a remodel before costs escalate further. Or perhaps you’re better off finding a new location that can be more easily adapted to your needs. You may find that you have leases you should try to renegotiate – or even stores you should close to help consolidate labor and resources. Perhaps you’re in the market to sell – and that carries its own action items at a time of high inflation. Greg Grambling, a managing director at Salomon Partners, where he specializes in food retail and restaurant investment banking, said the current economy may make potential buyers choosier about buying companies that have too many variable costs in their leases that could jump along with inflation. “As a potential seller,” he said, “you can generate leverage and value by acting now” – specifically to make more of your costs less reliant on the Consumer Price Index, whether that includes rent, Common Area Maintenance or lease terms. |
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