Restaurant Development & Design

FALL 2014

restaurant development + design is a user-driven resource for restaurant professionals charged with building new locations and remodeling existing units.

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5 6 • R E S T A U R A N T D E V E L O P M E N T + D E S I G N • F A L L 2 0 1 4 Negotiate Leases in a Tough Market BY DAVID FARKAS, Contributing Editor T here's not much good to report about the current real estate envi- ronment for multi-unit restaurant companies. Top sites remain scarce and many rivals continue to bid on them. New shopping center construc- tion, the source of growth for years, hasn't made much of a comeback. As a result, occupancy costs have shot up for second- and -third generation sites that are often in questionable condition. It's a market in which having a knowledgeable, strategic and frm approach to lease negotiations can make all the difference in the world. To discover how growth-oriented chains deal with these problems, rd+d asked two development executives, one from a large chain and the other repre- senting an emerging brand, to explain the strategies their companies employ to secure favorable sites and leases. Unfortunately, "favorable"doesn't always tip toward the chains. Landlords, both execs acknowledge, rule the rent roost with demand fnally outstripping supply. So anything favorable usually rolls to the landlords' side of the table. Even so, Corner Bakery Cafe's Mike Nolan and Reid Tussing of Mendocino Farms Sandwich Market have lately experienced success. Here they share answers to questions about how to negotiate for desirable sites under chal- lenging conditions. Their advice and tips for getting the best deal possible should give you a cost-saving chance with landlords — as long as you're not bidding against these two pros for the same space. Corner Bakery Café • HQ: Dallas • Concept: Fast Casual/Bakery Cafe • Chain size: 172 units (112 company-owned, 60 franchised) • 2015 development schedule: 30 to 35 new units • Average unit size: 3,500 to 4,500 square feet • Chief Development Offcer: Michael J. Nolan As chief development offcer for Panera Bread Co. for 11 years, Mike Nolan oversaw the opening of 1,400 units. He joined Corner Bakery Café in May and is now managing another rapid franchise and company-store rollout, only in a very different real estate environment. rd+d: What's the biggest real estate challenge for expansion-minded chains like Corner Bakery? MN: For growth companies — whether franchised or not — it's the remaining doldrums on the shopping center devel- opment side. There's very little new space coming on the market. That, in turn, creates two problems. One is competition for space among retailers and restaurant brands that are trying to grow. But there has also been a very big market increase How To Corner Bakery Mendocino Farms Sandwich Market Mike Nolan Big chains and small face similar challenges when it comes to getting favorable lease terms. Nowadays, landlords rule the roost.

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