How much more rent would you pay for a turnkey restaurant

Pizza Shop Talk The Think Tank
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Not looking to expand necessarily, but saw an opportunity today. It’s a 2 year old pizza place I know very well. I like the area and know why the business wasn’t successful based on my experiences there and a pretty good knowledge of their operation.

It needs a divider wall built and I would replace the majority of the seats and, of course, a sign. Other than that, it is turn key. The operators walked away one week ago with product on the shelf. The ovens, mixer, prep table, refrigeration, etc are all acceptable for my operation and in great shape. Everything is included (TV’s, POS (would need programmed), glycol system, equipment, furnishings, smallwares, shelving, EVERYTHING). I figure I’d have to invest less than $20k-$30k into the 4200 square foot space to make it just how I want it. So my question is, how much can I figure all that is worth in rent, if any? Should I look to prorate the value of all of that over a 3 or 5 year lease? I figure the auction value of the equipment is $25-30k (two y-600 stacks and an 80qt hobart alone are worth 12-15 at auction).

The asking rent is very high ($20/foot +cam so $27+/foot) but could be negotiated substantially. But even at $15/$22 a foot, I’d have to $1.2 mill just to get to the 8% cost of occupancy ballpark. I think it could be done, but that’s not my conservative estimate (and I like to be conservative). But do I factor in the equipment and turnkey nature in my rent consideration?

Any help from the experienced would be appreciated.

pC

www.nextdoorpizza.com

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Yes, I think it is fair to factor the value of the equipment into your thinking. What is not fair is to expect to get to an 8% figure when you do. 8% is fine target for a conventional lease, but what would the amortized value of putting all that equipment in place be? Or, what would be a fair lease value for the equipment… those figures should looked at on TOP of the rent calculation.

For example, if the equipment would cost you 100K to put in place you might look at it as being worth 20K per year. In a 4000 foot space, using these assumptions the equipment would be worth another $5 per foot! Sure, I would try to negotiate that down, but the fact is that an opertation should be able to cover the rent (occupancy) AND the equipment… so instead of having to buy that equipment, the landlord is leasing it to you.

Or… Ask for a separate equipment lease and an agreement on replacement of the equipment when needed etc if you are paying more per month to have it… otherwise, go for my first choice: a market rate lease and offer to buy the equipment from the LL at auction value.