A group of Washington, D.C., restaurateurs gathered Thursday for a mind meld on the challenges riling the once-staid market. Suddenly, it’s afire with competition, and that’s landing even longtime successes in situations a groupthink might ease. But there was nothing unique to the D.C. market about the first topic undertaken by the Restaurant Brain Trust, as the group calls itself: spiking rents.
Here are some tips from Brain Trust members for negotiating a viable lease and managing occupancy costs.
1. Think long range
Opening a restaurant is a grueling task, and the years afterward are often spent repaying investors. “I don’t start getting my money until I’ve been at it a few years,” said David Winer, an owner of such local standouts as Commissary, The Pig and The Bird. “I’m not here to open a restaurant for a couple of years.”
So don’t risk derailing success by accepting a lease shorter than 15 years, he advised. Winer often strives for a 20-year term—with an option for a 10-year extension.
2. Don’t ignore your gut
“If you’re not comfortable with your [prospective] landlord, you’d better walk,” said Winer, a 20-plus-year veteran of the D.C. restaurant scene. A fruitful tenant-landlord relationship isn’t a passive, distant one, he explained. Both are going to be invested in the business and its success—virtual partners—for a long stretch, so a comfortable relationship is going to be key.
Similarly, “I don’t do a lot of demographic studies,” he said. “If it’s a place where I’d want to live and where I want to operate, that’s for me. That’s my version of demographic studies.”
3. Still, judge by the numbers, not emotion
Instead of thinking purely in terms of cost per square foot, map out your business and how high or low you can afford to go. “Are you going to have a $2 million concept, or a $4 million concept?” asked Eric Heidenberger, a principal in the group that operates The Front Page, Bottom Line and Madhatter. “You need to see what your sales are going to be, and work backwards from that.”
Ruth Gresser, chef-operator of Pizzeria Paradiso and Veloce, urged prospective renters to get more granular than that. “You have to figure out your average check, your number of guests,” she advised.
4. Never agree to a personal guarantee in a lease
Period, the end, said Winer.
He explained that he’s known restaurateurs who were thrown into virtual indentured servitude by agreeing to personally make good on lease obligations. Their businesses tanked, but they were on the hook for the rent, so they were forced to scrape together what money they could and work to pay off the rest.
5. Renewal is better than a new lease
“If you have a good landlord who you have a good partnership with, when you sit down 15 years later, hopefully the same person is still there,” said Winer. And he or she is likely invested in keeping the relationship going, emotionally and financially. That, he seemed to suggest, provides some good-will leverage.
The flip side, said Gresser, is you’re negotiating with someone who’s well aware you want to stay in the space. “But there are other spaces you could choose,” she advised. “As my father used to say, another bus will come along in 20 minutes.”
6. Know when to throw in the napkin
“If you have to go back to your landlord and renegotiate your rent, you’ve probably gone too far already,” said Winer. “Just take the loss and walk. Don’t be sentimental.”
Gresser demurred, citing situations where there could be some adjustments made in collaboration with the landlord. But act before desperation sets in, she advised.
“Get in front of it, so you’re not doing what David is saying,” she said.