A Restaurant Real Estate Renaissance

As new concepts open and popular ones expand, real estate is at a premium heading into 2022.
By Nancy Wood

In the world of commercial real estate, the old adage of “location, location, location” has always been the siren call for restaurant owners and operators. It’s not news that the right concept in the right location can be the make-or-break factor in a successful venture. But in today’s marketplace, the right space may have a different look – and cost a little more.

During the pandemic, commercial real estate took a big hit across the board – office space, retail and hospitality. According to a report from millionacres.com, the retail sector was among the hardest hit due partly to several bankruptcies. The same source estimates that 17% of restaurants nationwide had closed by the end of 2020. And in Georgia, the industry saw at least 12% of restaurants close permanently by the end of last year.

While logic dictates that shuttered spaces mean bargains abound for lease or purchase, in fact, the opposite is true. Everyone can see that property values have shot up – both residential and commercial. 

“We have a mind-blowing reality of how elevated real estate prices have become during a term when you still have significant unemployment,” says Charles Marvil, managing director of hospitality for MAD Hospitality, LLC, “and it’s hard to fathom why.”

Marvil, who is working on multiple projects in Macon with Preston Snyder, founder of Thomas Preston Real Estate, says that corporations and real estate investment companies are buying up properties – sometimes without even looking at them. “The expectation is that they’ll still be able to rent those properties out to people who can’t afford to buy them,” he says.

For an industry ready to roar back post-pandemic, this scenario is leaving restaurateurs with some interesting decisions as far as real estate goes. In some cases, they’re taking advantage of second-generation properties – those that already housed a restaurant and still retain essential elements like a built-out kitchen space – and in others, they’re launching concepts that have been percolating for some time in spaces whose time has come.

Looking for Space in All the Right Places
Taking advantage of retail space gone dormant is one way to conquer the real estate squeeze. Just ask David Abes, who is developing a multi-restaurant experience in Dunwoody Village in the Atlanta suburbs. The owner of DASH Hospitality Group and longtime resident of Dunwoody saw a definite need for new restaurants in the area. After working on the concept for three years, he is seeing his grand vision come to life. 

Inspired by a project Abes had worked on in Florida, the existing retail space will be turned into four different restaurant concepts and a bar positioned around a large outdoor space. “There are definitely some bones, but it was all retail space and now we have to make it into restaurants,” he says.

But before the hospitality industry veteran – before starting DASH Hospitality he was Director of Operations for Here to Serve Restaurants for 14 years then served as COO of Buckhead Life Group for 3 years – could get started, he had to take his idea to the property owners, Regency Centers. After presenting his plan to company executives and getting the green light, the next step was meeting with the City of Dunwoody’s economic development director, then the City Council. “They loved it,” he recalls. And there was another great advantage – a tax abatement fund. “They had grant money for economic development for restaurants and entertainment, so I did a presentation to the economic development committee about what I wanted to do in the common space – even though Regency controlled it.”

Since the City of Dunwoody is a smaller community – population 50,000 – Abes also made it a point to present his plans to the Dunwoody Homeowners Association and he solicited local residents to become investors. 

Despite the fact that the project had to be put on hold last year, things have heated up again with the first phase underway.  A 35,000-square-foot outdoor space with a stage and screen is scheduled to open by Labor Day. Two of the four concepts – Morty’s Meat & Supply and Cuco’s Cantina, will initially be set up as food trucks until their spaces can be built out, with scheduled openings next spring. Barn(N), a bar with indoor/outdoor seating and a covered awning, is scheduled to start construction on Aug. 2 and open late this year. Two other restaurants, Yoffi and Message in a Bottle, comprise Phase 3. 

The Benefits of Owning
For many restaurant owners and operators, another option is purchasing the space rather than leasing it. And when that space happens to be in historic buildings, the projects can present new challenges. 

Charles Marvil has been consulting with restaurateurs for the last 10 years. Recently, he was approached by real estate developer Preston Snyder, who owns a number of historic properties in Madison, Ga., to consult on a local project. 

“He and I started talking about a mid-century roadside motel in Madison that he wanted to bring back to its original state,” Marvil says. The property, The New South Motor Inn, will operate as a contactless limited-service motel – an idea born from Covid restrictions. “It made sense then, and it still does,” says Marvil. “People can book online, get a code to enter their room, then check out without having to actually contact any person.”  

The motel project worked out so well, Marvil and Snyder now have six projects in the works. The next renovation of an existing space underway is a former Sinclair gas station on the square in Madison. 

“Preston bought the building, which will be a coffee shop that changes into a craft bar at night,” says Marvil. With more historic properties on the square, the next step was “the big project” in a building constructed in the 1870s.

Initially Marvil and Snyder began exploring the kitchen, which they dubbed The Ghost Kitchen. “We first started talking about it during the height of Covid,” says Marvil, “when ghost kitchens were such a hot topic – and they still are.” The thought was, if nothing else, the space could be built out as a kitchen for online and delivery. Then plans changed.

“As we looked at the spaces fronting the square,” says Marvil, “we came to the realization that we could wait around for somebody to come along and take one of these spaces or we could do it ourselves.”  

Plans now include a casual taco bar, called Mad Taco, and in the space next to it, a British-themed pub called The White Stag. In addition, there will be residential lofts on the second floor and ultimately a fine-dining option downstairs. The centralized kitchen will provide food for the taco bar, the Sinclair, which is down the road, and the pub.

Renovating historic spaces comes with its own set of rules. In this case, the team worked with Madison’s administration, in particular the city planner, who Marvil says gave them “tremendous guidance. He’s one of the city historians and is extremely knowledgeable about what has been in place and where.”

In an interesting twist, the 19th century building itself had been known as The Wagon Works, whose wagons were often used to transport coffins. Soon coffins were being built there as well, and the natural progression from there, says Marvil, was to become a funeral home. While the Ghost Kitchen name didn’t originally have the intent of playing off the funeral home, says Marvil, “Once we figured out it was a funeral home, it just stuck.” 

From the financial side, historic properties are often candidates for tax credits, and the city planner helped in navigating those as well. “There are tax credits available for renovation as long as you maintain the historical integrity of the building, and that’s exactly what we’re doing.” 

For example, the team wanted to maintain the original flooring, and the city planner provided guidance on that. “Then, when you have a residential component,” Marvil says, “there are fire sprinkler systems that need to be incorporated.” In order to do that, the ceiling that had been in place for 150 years had to be taken down, the system installed and the ceiling put back up. 

“It’s expensive and time consuming,” he says, “but it maintains the historic integrity of the building and it’s a safety feature. You don’t want to jeopardize safety.”

  As the redevelopment plans started to blossom, MAD Hospitality LLC was created as its own company that has lease arrangements with Thomas Preston Real Estate. “In effect we are the landlord and the tenant, but they are separate entities. The lease arrangement helps stabilize the rent structure,” Marvil says. “When we take this package of lease arrangements that are being executed with the real estate or the residential component and present it to a banker, it provides a tremendous value should we want to use that asset to fund another project.” 

The Right Location at the Right Price 
Ownership may have its upside, but for most restaurateurs, leasing is the name of the game. Nour Rabai, founder and CEO of PITA Mediterranean Street Food, opened his first location in Peachtree City in 2012. Initially, he didn’t plan to franchise.

“I was very adamant about growing organically on a corporate level only,” says Rabai, who still owns two corporate locations. But because of the demand from franchisees who wanted to grow the concept, Rabai says “we had to jump on that bus. It took about 3 years.”

Today, PITA has 27 locations in Georgia and 36 total. Although the pandemic did bring his growth strategy “to a screeching halt” as Rabai puts it, the concept is regaining its momentum. Despite some hiccups along the way – including the labor shortage – the franchise has two locations opening this year and more than 90 franchise commitments in the pipeline. And each one needs real estate. 

To meet that need, Rabai says he is pushing his franchisees to look for second-generation space. “There are a lot of second-generation locations that we have to choose from,” he says, “but the numbers in terms of price per square foot hasn’t gone down at all.”  

While a typical PITA restaurant can vary between 400 and 2,500 square feet, the pre-pandemic “sweet spot” was between 1,500 and 1,800 square feet with a $30 per square foot price tag. Rabai says the current cost in general is $40 per square foot with some markets that are driven by tourism even higher. “In Orlando or Miami,” he says, “it’s double the price based on location.

“During the pandemic, we began to see what some of our small stores were doing, such as food hall concepts,” he says. “Those were and have been very successful for us from a cost per square foot and sales per square foot perspective. Now I’m really pushing a lot of our franchisees to look at the food hall concept and smaller footprint locations to get us ready for the future in case something like this continues or happens again.” 

If smaller is better, what does the best location look like? For franchises like PITA, the ideal location is a corner unit in a strip or shopping center. 

“The more we have a tenant mix in a certain location, the better it is for traffic flow,” he explains. “You can double your capacity for seating with a corner unit or one that has a patio space.”

Another advantage of second-generation space is the fact that many items that are expensive to build out, like HVAC and the grease trap, are already there. That can reduce the initial cost by half for a franchise. 

“I’m a big believer in reducing the franchisee’s costs so they have cash to operate,” he says. “You can take that extra capital and put it on another location and grow with us as a concept.”

Lessons Learned
Whether the concept is a franchise or a new launch, putting the brakes on development during Covid had a real impact on how new ventures are being designed. The increased interest in outdoor space, the footprint of a space and the use of technology are all major considerations today. 

At David Abes’ development in Dunwoody Village, even concepts changed. “Now two of them are quick-service restaurants, and catering and to-go business will be a little more focused,” he says. 

He is also using technology to make it easier for guests to order and pay at the table. “If you are at one restaurant and your kids want to go to one of the other places,” he says, “you can pay on one tab.” And like the development in historic Madison, Abes is implementing shared kitchens. “That helps with labor and everything else,” he says.

Another factor in finding the right location is the synergy in the community. “One important thing is what does the neighborhood need? That was a big thing for me – what are we missing, how it all comes together and doing it right,” Abes says. “It’s not about me or what I want. It’s what the residents want.”

For the team at MAD Hospitality, LLC, raising the bar and creating interesting hospitality options in a small town is an important way to invest in the community and bring it back. Obviously, there is the goal of attracting patrons from surrounding communities, but says Marvil, “We want to do these projects with the intention of providing a living for employees who work with us that is sustainable.”