6 Questions with Levi Noe of Fuel & Iron Realty on Restaurant Square Footage, A Good Pro Forma, Second-Gen Spaces
Read time: 12 min
By Sophie Braker
Levi Noe is the Vice President of Brokerage at Fuel and Iron Realty. A Denver native, Levi’s background in copywriting, marketing, education, entrepreneurship, and food service lend him a unique perspective into F&B real estate negotiations. To learn more about his ideology, watch BSP395: Levi Noe of Fuel & Iron Realty on Restaurant Buildout Costs.
For a restaurant pro looking to start their own restaurant, where do they even begin searching for a space?
The funny answer is with us.
One way to do it is to get on LoopNet. Just start digging in on what’s available, what’s out there. I would recommend that they find a broker to work with even if it's not us. You need a commercial real estate broker. There are very few people who specialize in food and beverage. There are a lot of big brokerages that work in everything but you really want someone who knows what the F&B world is like. They should know the ins and outs. They should know what’s standard in LOI, what they should be looking for in a lease, free rent, who’s paying for the hood, the grease trap, stuff like that.
If you see an empty space that you like and you call the number on the sign on the building, the reality is you're calling that number and you're getting the landlord's broker. Their duty is to the landlord and they're going to try to get the best deal for the landlord. Let's hope they will be fair and they aren’t trying to totally screw you over. When you are going unrepresented to some kind of space you aren’t necessarily getting the best side of the deal. You’re probably getting the lesser of the deal. It’s always better to go in with a tenant rep broker.
You can call up the big broker firms and ask who they have who specializes in F&B. You can interview a broker. Just as they interview you, you should interview them. Learning their experience, what they specialize in will provide you with a ton of information. There should be a good relationship between you and your tenant rep broker.
The way a real estate deal is structured is that brokers get 6% of the transaction. So if the landlord has a real estate broker and the tenant doesn’t then the landlord’s broker gets all of the 6%. Otherwise, the two brokers split that commission. That's good to know because the vast majority of commissions don’t come from the tenant, they are paid by the landlord. There’s really no downside in that case to having a tenant rep broker.
What size restaurant square footage is most sought after right now, what does that mean for prospecting real estate?
Everyone wants 1000 to 2000 square feet. That’s what we hear the most, about 90% of people. I think COVID was a driving factor in rethinking the big 3000 square feet restaurants. Everyone reexamined their model. They asked can I do the same thing? Can I bring in the same revenue and do it in half the space? Cut down on employees, cut down on overhead, cut down on everything and still be successful. Especially now with how expensive real estate is. You’re paying by the square foot. It's a pretty easy equation, less square feet you’re paying less rent. You could say 1500 square feet.
There is a new thing where the bigger 3000, 4000 square feet spaces are being split in half and taken by two businesses. I would love to see more of that. I haven’t seen that very much. I can only think of one space that is doing that off of the top of my head. I saw it with a big old barbeque space that was 6000 square feet and divided it into two or three spaces. It's expensive for the landlord to do it. It's not just necessarily throwing up a wall. There’s a whole lot more infrastructure to build. I hope we see it a lot more especially with the Chili’s and the Waffle Houses as they close down.
What is a Lookbook and how does it help in finding the right restaurant space?
A Lookbook is like an abbreviated business plan. Let's say you did a wonderful job writing a comprehensive 50 page business plan. That’s awesome. Unfortunately, most landlords are too busy to read the whole thing. You boil it down to the key points. You make it sexy. Put in good graphics, your logo, your menu, a little bio. You add in the top points of revenue and your main points of the business plan. You get it all communicated in 10 or less pages.
One page business plans are good too. People love bullet points. People love to be able to look at something and get a good idea from one look. If they want more information, they can ask for it. If it's a well thought out business plan. It's mostly just communicating that you know what you’re doing or you’ve thought about what you are getting into. Even a one page business plan is better than no business plan.
What are potential investors and landlords expecting in a good pro forma?
It's back to the simple fact that you have thought through what it's going to take, what it's actually going to look like, a dollar for dollar process. You definitely want to do a projection of what you are hoping to be bringing in, in a year or two or three. Most pro formas I see go out three years. But also having an accurate concept of what you are going to be paying your employees, how much your cost of goods are going to be.
Also the pre-opening costs, all the equipment you are going to need, build out. Just demonstrating that you thought through what it will take.
Not all landlords ask for pro formas. But if they do ask and you don’t deliver one then they won’t really look at you. I hope that if you went to all of that work that they would actually look at it. They’re probably skimming, not reading everything. Pro formas are really theoretical. So it's funny that it's such a deal breaker sometimes. I think it intimidates restaurateurs sometimes. But even if you do a really simple one, that’s ok. Again it's about showing the effort and looking prepared.
What are the key factors on how to buy an existing restaurant business in a second-generation restaurant space, a turn-key space?
The key thing is just to have money to do it. The numbers for how much money people need are all over the place but you could ballpark $50,000 to $500,000. I’ve seen some astronomical asks that aren’t typical. That is not to buy the real estate. That is to buy the existing business, the furniture, fixtures, the equipment.
Always budget way more than you think you need. That’s a new trend to buy second generation spaces. There’s a whole bunch of factors. It's hard to find space and there’s so many people wanting those spaces. Construction is so much these days and it takes so long.
There are a lot of hidden costs for turn-key spaces. It's not like you’re going to buy a turn-key space and be able to open in two weeks. Negotiating a deal takes a lot longer than people think. There’s so much back and forth and then someone goes on vacation. The deals take forever to finalize for you to sign the lease. You walk in and you really need to understand the space. We always recommend walking through with a contractor. We can talk through high level stuff but a contractor can talk you through the details: is it ADA compliant, when was the last time the hood was serviced, has the grease trap been regularly serviced, is all your equipment in working order. Then there’s a hundred little things. Maybe you want to refinish the bar. Maybe you want to refinish the floors. The ideal situation is to not have to pull permits. Walking through with the contractor is really helpful to see what you can and can’t do without pulling a permit. Not having to have a permit will save you months of time.
How does a startup restaurateur calculate buildout cost for their first restaurant?
There are so many factors that go into it that giving even a ballpark number is tricky. Every single space is different.
I just interviewed Kyle Fabra from FDDGlobal. He specializes in all F&B in construction and design across the US. The ballpark number he gave me was, he said I’ve seen 50$ a foot to $600 a foot. The average was $250 to $350 per square foot for build out. It's super dependent on the space. If you’re building out from a gray shell, hopefully your landlord is giving you some TI. Hopefully if you have a turnkey it's less but it all depends on the space, what kind of shape it's in.
Born and raised in Denver, Levi has a passion for bringing the best food and beverage concepts to his hometown. He merges his love for his city, his in-depth area expertise, and his ability to understand the unique F&B needs to help his clients find their ideal space.
Levi has a background in copywriting, marketing, education, entrepreneurship, and food service that lend him a unique perspective into F&B real estate negotiations, communication, and connections. Levi gets so excited for his clients’ visions that he becomes part of their team, devotedly advocating for their best interest and the realization of their business dreams. Levi’s warm and open nature, in addition to his ties to Denver, allow him to create networks and form long-lasting relationships that open doors for his clients.
