3 Simple Ways to Protect the Real Estate Value of Your New Restaurant

Successful restaurant companies regard real estate as the first critical decision that will determine the long-term success of a unit and its profit contribution. In the beginning, the restaurant company has a clean slate and a new opportunity to put its best foot forward, start anew and make sure everything to ensure success is done as well as possible. The well-managed company realizes new units — new chances for optimal performance and meaningful revenue generation — are limited, so it has to make the most of every growth opportunity. Many of the challenges are out of the company’s control: Competition is a given; there will be plenty. Operational challenges? There will be those, too. But at site selection time, when the real estate part is most critical, the only problems — errors in judgment, oversights, mistakes, etc. — are typically self-imposed, right? Of course, they are. At this point, if there’s a breakdown, it’s their fault. In the beginning, it’s the restaurant company and their real estate advisors, that’s all. The company is in complete control and free to proceed how it chooses, at its own risk.

But occasionally formidable risks with your real estate investment can be the easiest to overlook. The operator has an opportunity to manage the risk associated with the real estate investment, especially when the new restaurant is among the development’s earliest prospective tenants. When this opportunity comes along, the restaurant operator/prospective tenant has huge leverage. If the operator fails to take advantage of the leverage, it’s an unforgivable mistake.

Here are three basic rules that any restaurant company should keep in mind when it’s among the developer’s first tenants:

First, learn the developer’s plans for other tenants, be they retailers or restaurants. Understand how the tenant mix affects the quality of your real estate. For example, some tenant mixes could overburden parking facilities at the times most critical to your business success. Negotiate a resolution with the developer over any possible obstacle to your business success.

Second, protect yourself with exclusive use provisions, which prohibit the landlord from bringing direct competitors to the same development. Protective use language in your agreement should be sufficiently broad. Imagine your restaurant is recognized for burgers and sports broadcasts. In some instances, the exclusive use provision would forbid another similar-themed concept from becoming a tenant. Still, in others, and even better, any full-service restaurant might be forbidden.

The third: Know the other tenants and make certain those brands are compatible with your target audience. Could you envision customers of other, nearby tenants becoming your customers? And vice versa? That’s key. To extend the sports bar metaphor, the restaurateur is far better off next to a hardware store and a sporting goods retailer than a dress shop and a weight loss center.

This seems fundamental, and it is, but these points go unconsidered more than you might imagine.