Nationally, Restaurants Hard to Sell

From AgentGenius, online blog
Thousands of restaurants close: Are you ready to sell the inventory?
By Erica Ramus on July 30, 2010 | 11 Responses

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.

$78 left. Really

NWAONLINE.com indicated that Bill Schwyart has only $78 left in his bank accounts. Really??

Markets everywhere

Commercial real estate markets are generally the same everywhere you go, because the economics of the markets are the same. Smaller markets warrant a certain type store and make-up, larger markets can justify a different retailer or office building. Most is due to demographics, but there are other factors such as traffic flow, region of the country, visibility, newer or older community, retirement or business or laidback community, etc. A small town in Arkansas generally has the same franchise brands as a small town in Georgia. Mom & Pops may be called different names, but the types of businesses are generally the same. What makes a product or retail store unique is that it's different, new, has great customer service, and creates a buzz.

General Market Update

Go to my LinkedIn Account to get more information about today's commercial real estate market.

http://www.linkedin.com/in/EllisKelly

From this morning's Arvest Skyline Report meeting at the Fayetteville Clarion:

Economic view: Interest rates will go up, relatively quickly, this year and through next. Now is the time to buy if you need financing. Stimulous plan has helped, but only temporarily. Generally, the economy is showing improvement, with consecutive quarters of GDP growth. Why? Inventories are really low, so manu is picking up. Companies are still reluctant to hire, however, and will not likely change for some time.

NWA specific: Generally, Commercial RE has not hit bottom, 2010 will be a really tough year, as more property goes back to banks, foreclosures, etc. Residential markets are showing improvement, have hit botton, and are on way back. Home prices are generally now set back to like they were in 2004. Home inventories are down, building permits slowly on the rise, but to more sustainable levels.

MF: Way overbuilt, especially in Fayetteville. Too much inventory

Data points: Retail and office vacancies are way above national average. Rogers office vacancy - nearing 30%. Rogers retail vacancy - 16%%, national average is 8.5%. Fay office vacancy - 19%, national 18%. Fay retail vacancy - 12%.

Too much commercial inventory in all categories, especially office and strip centers.

2010 promises to be another challenging year, but as long as you plan your work and work your plan, things should be ok.

Commercial Real Estate in NW Arkansas is really not much better than the rest of the country. Our area is really a third or fourth level commercial market, with one big caveot: We have the largest retailer, largest company in the world right in out our back door. Wal-Mart has and will continue to drive all that is growth in this region, and their growth doesn't look like it will stop any time soon.

More about commercial: new development projects are at a standstill. Retail vacancies are in the mid-20's, multi-family high teens, office space in mid teens, medical in the low teens, and industrial in the low teens. It's a great time to be a buyer or a prospective tenant.

Banks are at a turning point as well. While many are in good shape, most have significant developments on their books, and examiners are going to look to have banks draw that down significantly in the coming two years. In addition, to qualify for any type of commercial loan, you must have stellar credit, a great project, and must be prepared to put down at least 20-30%.

Listed properties I have include office space, plenty of great priced retail space, several well-positioned corner buildings for sale, great industrial space for sale or lease, etc. Contact me today, and let me see what I can do to help your business!

Follow me on LinkedIn, Twitter, Facebook.

Kelly Ellis
"READY FOR YOUR BUSINESS"
Executive Broker
CBC Faucette
12 Colt Square
Fayetteville, AR 72703
479.236.2566
http://www.cbcfaucette.com/
kellis@cbcworldwide.com

Commercial Investment Real Estate magazine has a mid-year outlook on commercial real estate. When it comes to retail real estate, the magazine says:

"It’s easy to say retail is doomed for the rest of the year. But consumer spending’s dramatic free fall since 2007 doesn’t take into account the massive price reductions of necessary disposables such as gasoline and food in the past 18 months. Shopping centers will be cheap in 2009 and 2010, and investments will be based on trailing actual income, not pro forma projections. But a shopping center’s location cannot be replicated, so if the asset is a good core location locally, it’s time to buy. Consumers may not return immediately to past levels of spending, but U.S. consumers can’t go four years without something new. Major durable purchases will return by 2010–2011, including automobiles. The only question is what tenants are in a position to survive the unknown for that long."