MELVILLE, N.Y. (STL.News) – U.S. restaurant chains should maximize their real estate portfolios as a strategic response to a raft of new challenges facing the sector, an executive from A&G Real Estate Partners warns in a just-posted column in online publication Modern Restaurant Management.
“By renegotiating leases, selling owned real estate and closing lagging locations, restaurateurs can dramatically improve their positions,” asserts Michael Jerbich, a Principal in the Melville, N.Y.-based real estate advisory firm. “For some operators, the right strategy here can mean the difference between surviving or becoming another victim of disruption.”
In the piece (“Portfolio Power—Why Maximizing Real Estate Should be on the Menu for Restaurants”), Jerbich notes that some U.S. restaurant chains are struggling to adapt to the changes wrought by ecommerce, shifting consumer preferences and the death of a growing number of middle-market malls.
To illustrate, the retail real estate veteran cites recent bankruptcy filings by the likes of RMH Franchise, Bertucci’s, Logan’s Roadhouse, Real Mex Restaurants and several others.
He also notes that some prognosticators predict the sector will see more consolidation.
These changes mean that maximizing real estate is no longer optional for many chains, he contends. However, the effort must go beyond fundamentals like haggling for rent relief or shrinking store footprints to save money. “These days, we are seeing massive channel-blurring as more non-retail tenants—everything from banks to health clubs to cellphone stores—add cafés, bars and other F&B offerings,” Jerbich writes. “In some cases, these new uses are eroding the traffic and sales of existing restaurants, bars and cafés on the property.” Given these dynamics, restaurant operators should pay close attention to whether any of their co-tenants are violating lease exclusives—and then pressure landlords to either eliminate the violations or grant them concessions in lease-renewal negotiations, he advises.
Restaurant operators also need to be armed with more facts when they sit down at the negotiating table, Jerbich says. “That means securing reliable data on comparable rents in the trade area, changes in traffic patterns, demographic shifts in the marketplace and more,” he writes.
In the column, Jerbich notes that shuttering underperforming locations can be a smart way to keep a restaurant portfolio strong in the face of today’s competitive pressures. When chains own their own real estate, he adds, they should consider working with a third party to find a solid replacement tenant for that location prior to putting it on the market.
Shuttering underperforming locations can be beneficial because it gives restaurant chains more money to reinvest in their best units. “Likewise, renegotiating leases can result in shorter-term commitments that give you more and better options down the line—to relocate the unit or shrink or even expand footprints as needed,” Jerbich adds.
Regardless of how chains approach their real estate, he writes in the conclusion to the piece, it is important to avoid inaction in the face of looming challenges. “Hesitation can be fatal in today’s environment,” Jerbich warns. “Settle on the strategy that makes the most sense for your company—and take decisive action.”
About A&G Real Estate Partners
A&G is a team of seasoned commercial real estate professionals and subject matter experts that delivers clients the highest possible value for their real estate. Key areas of expertise include real estate dispositions, lease restructurings, valuations, acquisitions, and facilitation of growth opportunities. Utilizing its marketing knowledge, reputation and advanced technology, A&G has advised the nation’s most prominent retailers and corporations in both healthy and distressed situations. Founded in 2012, A&G is headquartered in Melville, N.Y., with offices throughout the country. For more information, please visit http://agrealtypartners.com/