Nightclub & Bar - October 2009

the U.S. Mint Headquarters building for a long-anticipated expansion of his Cuba Libre Latin restaurant and rum bar into the Washington, D.C., market.

“We spent three years looking in the area of Washington, D.C., for a new Cuba Libre location,” Gutin says. “But when the economic recession deepened late last year, we started to see deals that had not been offered before.”

Gutin and Cohen acquired an 8,000- square-foot space that they are expanding to 10,500 square feet with the addition of a mezzanine. “We are working on

finishing the design now,” Gutin says, with the planned opening of the fourth Cuba Libre set for spring of 2010.

Without going into specifics as to the exact nature of the lease agreement, Gutin says the D.C. deal allows his company to pursue its long-term expansion strategy despite the economy’s reduced revenue and cash-flow outlook.

Gutin says such real estate windfalls are no minor detail on the path to success. “We found we were able to expand into D.C. while expecting a reasonable return on investment. If restaurant devel-

Cuba Libre Orlando.

A New Lease on Nightlife

scene of a city where Manhattanites enjoy fewer nightclub options than ever. “I am not noticing it to be the big players, the ones who have several operating venues. I’m not seeing those guys jumping into the buying picture right now, but there are guys out there who are still generating a lot of cash and those are the ones who are eyeballing these rather exciting deals,” Picken observes.

At press time, one such property available to those with the financial resources was a restaurant location on Franklin Street that a tenant recently surrendered back to the landlord. “I’ve had some giants in the industry come to see it. It’s ready to go, available for no up-front money, with rents that are a third less than a year ago.”

Opportunity Knocking

One East Coast nightlife impresario who’s taking advantage of the turning of the tables in hospitality real estate is Barry D. Gutin, president and CEO of Libre Management, which operates three Cuba Libre restaurant locations in Philadelphia, Atlantic City, N.J., and Orlando, Fla., and two nightclub concepts, Shampoo (Philadelphia) and 32 Degrees (Philadelphia and Atlantic City).

Despite seeing his own restaurant and nightclub revenues fall significantly within the past 12 months in the wake of the global economic downturn, Gutin and partner Lawrence Cohen recently acquired a lease on a space located inside

More so than in recent decades, nightclub, bar and restaurant operators now have the upper hand when it comes to negotiating a lease. For those with the financial wherewithal and the will to risk it, today’s window of real estate opportunity holds the promise of sweet deals with no fixture fees or automatic annual rent increases. Additionally, it puts new operations on more equal footing with established concepts in terms of a tenant’s ability to afford the best location on the block.

But as enviable a position as this may be for hospitality entrepreneurs, taking full advantage of it requires careful thought, planning and effort.

Charlie Greener, CEO of Dallas-based Harborage International, which specializes in the design, construction and operation of major hotels, restaurant chains and nightclubs throughout the United States, says a good first step toward cashing in on the real estate bonanza of 2009 is researching the market and finding out what’s available for lease in a given city or zip code.

“There is always a realtor
that lists all businesses for sale

or lease, and each city has its own web site with listings of available commercial space,” Greener says. “Also, most cities have real estate brokers who specialize in restaurant, bar and nightclub properties.”

In choosing a broker, Greener says a would-be tenant can save time and money by going with a broker who specializes in tenant deals, as opposed to a firm that assists landlords. “If someone is not experienced in making deals and this is their first location, they especially need a tenant broker on their side,” Greener says. In most cases, even if a landlord hires his own broker to represent his interests, Greener says the two brokers usually divide the commission on any deal equally.

Squeezing a landlord for the very best lease deal also means paying careful attention to common area maintenance (CAM) fees built into the rent, as well as the age and condition of air conditioning and heating systems. “Systems that are efficient cost a little more, but they save money in the long run. Some can pay for themselves in a couple of years.”

As a general rule, Greener says, a landlord should be willing to give the first year’s rent back to any tenant ready to sign a long-term lease; the money is to be used in upgrades and improvements. And prospective tenants should take full advantage of their ability to landlord shop by doing business with those willing to be flexible.

“In negotiating with the landlord, tenants should ask for rents that are more oriented to a percentage of gross sales,” Greener suggests. “As long as capital expenditures, including rent and CAM fees, do not exceed 10 percent, an operator can be assured that they will make a profit. If a guy is asking $18 per square foot rent, an owner might offer $15 with a 10 percent additional bonus paid to the landlord based on actual gross sales. This is a great incentive for landlords to offer you space at a reduced rate.”

When in doubt about what to ask for at the negotiating table, Greener advises tenants to be bold. “You never get what you do not ask for. If you ask, the worst they can say is no.”