Re: How to determine value of a restaurant? - Posted by ray@lcorn
Posted by ray@lcorn on June 15, 2006 at 10:42:11:
You need to value the building. Your restaurant business is what you’ll use the building for, not what you’re buying.
My rule of thumb for restaurants is “don’t.” Some people do very well in that business, but I’m not one of them. I don’t like to hear my name and the word restaurant in the same sentence. That said, we own two of them (one as landlord, one as operator), but only because they are part of a larger puzzle.
My personal negative bias aside, industry average expenses are 35% labor, 35% food cost, and 20% admin and general. Higher average tickets can get those down to 30/30/10, but much depends on the market. Within the A&G is space cost, and most operators try to limit that to no more than 10% of gross sales.
If you hit your projections that would translate to a max rent of about $3250 per month. (50 x $25 = $1250 x 6 = 7500 x 52 weeks = $390,000 x 10% = $39000 / 12 = $3250)
However, this is a rehab project, and your total costs are going to be the purchase price, plus the renovation and completion of the lofts (which always cost more and takes longer than anyone thinks), plus the expenses involved in opening the restaurant. My guess is the building is worth something less than replacement cost because you’re basically taking on a development project. Hope you’ve got deep pockets.
An alternative may be to sell the lofts as condos? But only if there is a market for that type of thing, and if regulatory issues don’t run the costs out of sight.