Michael Walters: Restaurateur Perspectives on Real Estate

Michael Walters
Michael Walters

With the Dallas-Fort Worth restaurant market’s continued expansion, restauranteurs are paying even closer attention to their space and the many variables that go into site selection. Having built a career specializing in this sector, I’ve gained insights about what restaurant owners need and expect out of their brokers. Here are some things I’ve learned.

Growth Strategies

Restaurateurs want their real estate professionals to provide insights on the market, to strategically advise on available sites, and to offer access to sites not widely known to others. When it comes to site selection for a restaurant, brokers must not only analyze the current market, but also use existing data to determine patterns and anticipate future outcomes and trends. Lastly, we utilize all of the market intelligence we have accumulated to construct a strategy that will generate a pipeline of deals.

To succeed in long-term development, real estate professionals must assemble a meticulous development plan and instill a solid program for store openings. Remaining cognizant of the timing of these plans will be crucial for restaurants in high-growth mode, as they must open a certain amount of locations per year, while balancing the necessary time needed between openings.

Customer Analysis

Understanding the restaurateurs’ customer is vital in site selection and creating the development plan. Primarily, we take a swath of the restaurant’s high volume stores they currently operate and find positive correlations between each of the demographics and psychographics, which is essential in pinpointing the customer base. It is also important to analyze the population density metrics, with an emphasis on the daytime population of those working in the area, at the stores performing at the top and bottom of the spectrum.

Real estate professionals with emerging brands as clients that do not have an adequate sample size can use other correlators, such as the restaurant’s menu or a homogeneous brand to identify the typical customer. For example, our client Modmarket, a cafe for health-conscious salads, sandwiches and pizzas, targets the same customers as Whole Foods, another one of our clients. Utilizing our market knowledge on an industry stalwart to support Modmarket allows us to search for deals in the same areas, but a space that is tailored to Modmarket’s offerings and needs.

Once the key correlators of the customer are determined, such as middle-upper class, college graduate, single, food-conscious, prefer outdoor seating or work nearby, we are able to develop a more concise and strategic development plan.

Budget

Real estate professionals know that there’s a trade-off between build-out costs and the long-term fixed rental costs. Since the restaurant business is so capital-intensive on the build-out costs, restauranteurs typically are more rent-sensitive. In addition to interior dining decor and kitchen fundamentals, other pre-opening costs such as hiring, training, and acquiring a liquor license, all put downward pressure on the rental budget. For example, some restauranteurs will go the extra mile to hire a manager as early as six months in advance for training.

Functionality

As much as finding a space in a densely populated area is ideal, one of the most important aspects we look for when securing a location is the functionality of the space. Compared to retailers, where foot traffic, size, and window frontage may be most important, restaurants have many moving parts that include the same demands of a retailer—but with the added requirements of running a kitchen.

Unique functions we look for are the specs of the space and how it is serviced, including power wattages, the size of the gas line, grease trap installations, and delivery and trash removal capabilities. For example, food and supply deliveries and trash removal are everyday functions and, in turn, need to be easily accessible and a fluid process. A space that is not serviced with a dumpster large enough and within close vicinity can easily kill a deal.

Parking is another deal-breaker, and underestimating the amount of parking necessary for a restaurant serving at full capacity can be an easy mistake. A typical fast casual restaurant that typically staffs around 30-40 employees whom also need parking spots, often end up with insufficient parking for customers. In my experience, a large format restaurant with more than 6,500 square-feet needs at least 120 spaces to be successful, and any less hurts the business.

As a real estate professional, understanding these four important components of restaurant site selection will immensely improve the search process and eliminate a majority of the frustration, which equals a very happy restaurateur!

Michael Walters is president of the Restaurant and Entertainment Group at Falcon Realty Advisors. Contact  him at [email protected]