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Friday, August 29, 2008

So you want to open a nice cozy restaurant?

Have you ever wondered why restaurants mark-up double or more on wine, beer, and food? Have you ever grumbled, "I can get that cheaper at the store?"

Then, read this:

It's a rough-and-ready evaluation of the costs required to renovate an old, small, building into the bare minimum needed to house a restaurant. It does not include the actual costs needed to operate a restaurant.

The building is vacant and in need of many repairs, and is located in a Washington, D.C. neighborhood that has been seeing a lot of small-scale re-development (Trinidad area along H Street NE).

For 2,700 square feet, the asking price is ... $1,500,000!

The most rent someone can charge right now on H Street NE is $22 a foot. That means you would pay about $59,000 a year in rent.

$5000 a month in rent for some lucky tenant.

Now, the bank likes to assume any place has a 10 year lease. All yearly rents for valuation sake are timed by 10.So, what this building will appraise for is $600,000. If the appraiser is drunk, add $100,000 just for hype's sake. The most the building could sell for is $700,000.

If a person buys the building, they would then have to put $300-$350,000 to get a certificate of occupancy, getting it into 'restaurant shape' before having any cushion in the account to run for training, payroll, slush fund, etc.:
  • $30-40,000 heating and air conditioning
  • $25,000 electrical
  • $10,000 to Pepco [electric utility] for a heavy up
  • $20,000 plumbing
  • $10,000 water service from street
  • $20,000 sprinkler system
  • $5,000 concrete slab back patio
  • $15,000 architect
  • $50,000 rent while waiting for plans to be approved
  • $10,000 lawyers fees after neighborhood protest [priceless!]
  • $20,000 business and construction insurance
  • $20,000 [stove] hood and venting system
  • $20,000 floors
  • $10,000 new beams and joists
  • $150,000--kitchen equipment, furniture, bar, register system [and that's bare bones]
Inner Stairwell of Granville Moore's
The analysis was written by Joe Engert, someone who is in a strong position to offer it. He is an investor in Granville Moore's, a Belgian-inspired bistro and beer bar situated directly next door to the building for sale.

The link here will take you to a report on a review (mostly favorable) of Granville Moore's. Go to the comments section for Engert's comments.

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