The real estate market in New York City is one of the toughest in the world. AllDay Industry recommends hiring a hospitality-focused broker to help you navigate the market.
An experienced real estate broker is a crucial part of your opening team. A good broker will have the market knowledge and understanding to manage your search efficiently and will save you crucial time wandering the streets to find availabilities. When looking for a broker, Steve Rappaport of Sinvin Real Estate Brokerage, suggests finding a broker that has extensive hospitality experience as the needs of a restaurant differ from other commercial spaces. “You should find a specialist in the hospitality industry,” said Steve. “Just like you wouldn’t go to a neurologist if you had cardiovascular issues, you should make sure you find a specialist with the right experience for your needs.”
One of the first steps of finding the space for your concept is to sit down and have a realistic conversation about your expectations with your broker. “Your broker needs to understand your budget as well as your constraints,” said Steve. Brokers also want to know that you are serious about moving forward which, aside from a solid business plan, includes the necessary capital to cover the security deposit, legal fees, buildout and about six months of operating expenses.
Although a broker may represent a prospective tenant or landlord, the fees involved are almost always paid for by the landlord for Manhattan properties, making the decision to hire a broker easy in the borough. Jeffrey Starin of Stareal Group Real Estate Brokerage, who focuses his business in Brooklyn has had a different experience with broker fees. “I’ve found the reverse true in Brooklyn. If they are buying an existing restaurant, then the person paying the fees to the broker is usually the seller of the business, not the landlord,” said Jeffrey. “If the customer – the tenant – is a big-name operator or chain, or as we say a ‘credit tenant’ meaning their presence in the building will increase the landlord’s creditworthiness, then the landlord will certainly pay the fees, even in Brooklyn. But most small or medium or even large-scale restaurateurs don’t have the clout of a chain, so the landlords expect the tenant to pay brokerage fees in Brooklyn. In the end it’s always a negotiation, but Manhattan differs from Brooklyn in significant ways on the path for a restaurant’s success.”
A real estate search time can vary by the nature of the concept, but on average it will take at least six to nine months from checking out listings to getting the keys. If a prospective tenant is dead set on a neighborhood or type of space, it can greatly increase the search time so having a bit of flexibility is important. “The real estate search is about refining your needs and making compromises. It is important to be flexible” said Steve. Often people have a specific concept in mind and are a bit blinded as they look for the perfect space, leading to a much longer search time.
Steve also recommends looking for the smallest amount of space that will fit your concept. “You’re paying a premium in New York for every square foot so make sure you’re not getting more than you need,” said Steve.
Jeffrey recommends doing your own due diligence on prospective landlords by doing a simple Google search or through landlord look up services. This background research can help you avoid signing a deal with a known problematic landlord. Additionally, your broker should be able to advise you regarding poor landlords.
A broker’s impact can be felt when it comes to finalizing a lease with a landlord. When it comes to lease options, Steve recommends that a tenant ask for the longest lease possible. It is common to secure a 10 to 15-year lease with a 5-year option. If you create a successful business, you should enjoy the fruits of your labor before your costs inevitably increase. Jeffrey suggests asking for what is commonly known as a “good guy clause” in your lease. If you’ve been a good tenant over the years, the clause should allow you to get out of a long-term lease without penalties if you pay your rent until you vacate and leave the premises clean. If your business fails or substantially changes, it will help you move on.
It never hurts to ask for some concessions from the landlord, including requesting a few months of free rent during your buildout and reasonable yearly rent increases of about 3%. Though a landlord may not agree to multiple free months of rent in a year, you can always ask for a free month for rent for years two or three of a lease. For Manhattan properties, it is also reasonable to ask a landlord to cover building costs or major repairs like an electricity upgrade as that will be a permanent fixture to the space if your restaurant eventually moves out. In Brooklyn, though, concessions may be harder to attain. “I can say I’ve never seen a landlord in Brooklyn cover any costs of build-out that affect the tenant. Most landlords provide the space “as is” and it’s the tenants responsibility to upgrade” said Jeffrey. Of course, remember that it is a negotiation. “A good deal leaves neither party 100% happy” said Jeffrey.
AllDay Industry has the experience and the network to help you develop your concept from any stage of development. From finding the perfect space, hiring the right executive chef, or developing architectural plans, our team will act as your primary consultant to connect you to some of the best talent in the hospitality industry.
To learn more, feel free reach out to Jeffrey Starin of Stareal Group Real Estate Brokerage and Steve Rappaport of Sinvin Real Estate Brokerage or contact AllDay Industry at 212.346.0606 or firstname.lastname@example.org.