Top 5 Reasons that Restaurants can be a Safe Investment

In the past, restaurants were often viewed as “risky” investments by investors and bankers.  With the evolving world of retail, I have become a believer that restaurants can actually be a safer bet than your traditional retailers.  If you’re thinking about investing in commercial real estate, here’s a few reasons why you may want to consider a restaurant property:

1. Beer & Nachos Don’t Come in a Box.   As the online world puts the hurt on traditional retailers, more and more consumers are happy to receive their goods on the doorstep.  Malls are struggling and numerous retailers are closing, but drinking a cold beer and eating hot nachos with your friends can’t be delivered in a box.
2. Expensive Infrastructure.  Restaurants are one of the most expensive properties to build on a $/sf basis, which can help the landlord in several ways.  First, the high cost makes it more difficult for the competition to enter the market.  Second, once a restaurant gets established, it is very hard to “pick up and move” to try and save a few bucks on rent. Lastly, once that infrastructure is installed, it will be that much easier to the replace the tenant when they leave.
3. Predictable Rent.  If you take the time to learn a few of the basics about restaurants and rent, you can quickly determine if the location & rent is sustainable.  For example, many landlords love to raise the rent as much as possible on their buildings, but if you know the sales of the restaurant, you can determine where the rent needs to be so the restaurant stays viable.  To make sure you have predictable rent, the lease should require the tenant to give you sales numbers.
4. Upside Potential.  There are very few real estate investments you can take advantage of great sales like you can in restaurants.  For example, you may have a modest base rent, but structure a deal whereby the tenant pays a percentage of sales if sales exceed a certain threshold.  This is a win-win for both the landlord and the tenant, and your return just went up!
5. Triple-Net Leases.  Most investors love triple-net (NNN) leases, and most restaurants are NNN leases!  A triple-net lease establishes that the tenant pays all the operating expenses of the property, which reduces the landlord’s expense exposure and reduces management headaches (one of my favorite parts!).