Regional real estate agents talk restaurant turnover

by The City Wire staff ([email protected]) 45 views 

Most consumers have seen them – restaurants that seem to change names and owners just as customers are starting to get used to the menu and have possibly added the restaurant to their list of go-to joints on a Friday or Saturday night.

But what is the reason for the high turnover of restaurants? According to Tom Reed, a local real estate appraiser and analyst in Northwest Arkansas, many new restaurants are trying to overcome nearly insurmountable odds at survival.

"What happened there is when a lot of these (new restaurants) came in (during) the mid-part of the past decade, when land prices were higher and the overall cost of putting a facility in were higher, some of these restaurants were putting in over $2 million into the operations and if they didn't make it, (and new restaurants in the same location didn't make it) the second go around and the third go around, whoever purchased that property got it for 50 cents on the dollar."

The result for many locations is often times lower operating costs and therefore a restaurant can sometimes turn a profit, possibly becoming the first to do so at a given location, or breaking even, according to Fort Smith real estate agent Jim Simmons.

"It's not a matter of a site becoming (a) better (restaurant)," he said. "It's a matter of break even."

The biggest cost when a new restaurant is constructed is normally the land acquisition, building and equipment costs, Reed said. When restaurants go out of business, he said the buildings housing restaurants are most often sold at a loss, which is why owners are getting better deals and breaking even becomes a real possibility.

But one factor that all restauranteurs must look at in their bid to be successful, Reed cautioned, is thinking about competition in proximity to where their restaurant will be located.

The perfect example, he said, is the Olive Garden in Fayetteville. With the Olive Garden, it is located in Steele Crossing near the Northwest Arkansas Mall and Target, one of only two Italian eateries along that strip. In contrast, restaurants that have gone out of business near the same intersection include Fuddruckers and T.G.I. Friday's, which have several other hamburger and steak venues to compete with in the general vicinity along with heavy overhead costs from land acquisition, construction and purchase of equipment and furniture.

Other restaurants that have followed in the same locations, including the Grub's Uptown in the former O'Charley's location in front of Target, have found success where the other more famous national chains have failed.

"Second and third buyers have been able to come in at much, much reduced cost at some locations in Steele Crossing," Reed said.

Along with the reduced costs of operating are a varied assortment of restaurants. The former T.G.I. Friday's is now occupied by Tilted Kilt, an Irish-themed bar and grill, while the former Fuddruckers was most recently a hispanic-themed eatery.

As the Fort Smith and Northwest Arkansas areas continue to rebound from the recession, Reed and Simmons see the restaurant industry rebounding, with more restaurants being a success.

In Fort Smith, Simmons said the signs are visible to real estate agents like him when eating out on the weekend.

"I do think it is picking back up again. You see it when you drive past some of these restaurants on a Friday or Saturday night. You are seeing the traffic pick back up and the wait times are starting to pick back up, too."

Growth in the restaurant industry, he said, will continue to move south as retail has done. But he also sees it eventually moving east, to Chaffee Crossing, though he said the area is still "green" right now.

"If they continue to build, you'll see the new growth come out there. It's not ripe yet, the traffic counts are not there yet,” Simmons explained.

He said growth could return to the Rogers Avenue area in Fort Smith if more lanes were added, but until that happens, he thinks more restaurants will continue to see the future moving south along Phoenix Avenue.

Reed said he does not foresee an explosion in growth, but he does see the needle moving up in Northwest Arkansas.

"Certainly the commercial market lags behind the residential market, but our restaurant market has improved and continues to improve and we're seeing improvement in our commercial sector and I think in the foreseeable future, you'll see slow and steady growth. Good restaurants in good locations should have a great opportunity to succeed."

In the end, though, Simmons said a lot of what makes a restaurant successful is not just location or a strong economy, it's about the people running the establishment.

"Yes, you need location, but the number one aspect is people."