Ponchorello

3 minutes ago, Houston19514 said:

 

That seems insanely overpriced.  How many square feet is the space?

Its right at 2500 sq ft.

On 5/23/2020 at 5:13 PM, LBC2HTX said:

East Hampton locked out. Only surprise is that it didn’t happen before COVID.

ROD wants $29k a month in rent for the East Hampton space.  That right there is the problem...the cost of doing business in ROD is absurd and not sustainable.  ROD is going to be riddle with vacancies within the next year.

11 hours ago, KinkaidAlum said:

I currently an owner/investor in multiple hard retail businesses in several markets (Boston, Houston, Denver, and Los Angeles) but please continue...

Then im kinda taken back you believe declined traffic count doesn't affect the bottom line of a business....

Your business model must be insulated from these types of changes because the 10 businesses I have in Houston , the 6 in Colorado, 3 in Dallas and 1 in San Antonio are sensitive to decreased traffic.  

I am very impressed to say the least.

23 hours ago, KinkaidAlum said:

It's the termination of the Spur not a corner of 610 and 59. Nobody is randomly driving by on the Spur. 

Its easy for you to say when you don't own a business.  When and if you do start your own...we will have that talk again about it.

3 hours ago, KinkaidAlum said:

If Whole Foods was relying on fly-by traffic to stop in while people were zooming through Midtown to get to US 59, then they didn't hire a good local consultant. Houstonians do NOT think parking garage grocery shopping is convenient. Nobody who lives in in SW Houston/Fort Bend is going to pull over, navigate a garage, deal with getting back on the freeway with Midtown one-way streets just to pick up some bananas. Lets get real here. Houstonians are a lazy-assed people. If there's no convenient parking people aren't doing it. 

 

That Whole Foods was built for local folks and foot traffic from all the rooftops nearby. That'll take time to build. I am sure Whole Foods knew they'd have to grow into the market slowly. Trying to blame poor results on a freeway entrance closure is a stretch.

That argument doesn't quite apply.  If so, then every freeway restaurant/retailer/business would be dead.  All those cars are doing 50mph+.  Its visibility..its being in the mind, just like a billboard along every freeway.  Again...why are billboards so darn expensive....hmmm bingo....TRAFFIC COUNT!

Not sure why everyone ignores THE #1 data point for any retailer/restaurant....TRAFFIC COUNT.  You reduce traffic count i.e. visibility then you basically can reduce sales.  It has and always will be the most important factor.  

I read a few of you say well its only a couple of blocks away...that couple of blocks is so huge in retail.  Have you ever wondered why so much is developed at busy intersections??  Yeah, its called traffic count.  Its the same for freeway development...why are so many businesses along the freeways??  Same data point.  Nothing has changed from 40 years ago people.  If you don't see it you dont think about it.  Its as simple as that.  

Its also why any space for lease/sale along busy streets are much higher than those set inside or tucked away.   I have 2 retail front stores selling the same product service.  One off of Alabama and another tucked in Heights.  Which do you think does better?  West Alabama because its on the street with traffic even though Heights according to other data points such as income say I should be making more money in the Heights.

5 hours ago, Luminare said:

 

This is nice and all, but do you have an actual argument to go with this? The only thing you proved is that you don't like what I said. You are fine to not like it, but that doesn't mean that you have an argument to go against it. I also didn't say anything you just said. I'm not talking about golden parachutes or whatever. What I said is real life. I stand by what I said. You also don't need millions to spread the proverbial eggs around. Starting a business is already risky enough, its harder when you push all your chips into one pot and just assume its going to work. You are just setting yourself up for failure

As an owner of mutliple businesses of which some are in the montrose/midtown spur this closure has effected me.  I entered into this market 8 Years ago taking risk when lower Westheimer was what you would call "seedy" however what I never envisioned would be the spur being closed down.  For me it was and has been a major traffic generator.

And yes you pretty much almost need a cool million to spread your eggs around.  Opening a business in this day and age is very expensive. I have 3 businesses in midtown/lower Montrose as well as another 3 in the heights and oak forest market.  It took me over a million to get my "eggs in other "baskets".  Each time I open a business I have invest at least $400-500k...you have to account for lease deposits, security deposits, utility deposits, build out costs, hiring costs, inventory, then cash flow for the first 6-8 months.

If you can show me a business that requires only $50-60k that produces a worth my time return then im all in.

5 minutes ago, gmac said:

 

Spoke with the owner of a small restaurant in a less-expensive part of town, and he said he basically had to bring in $700 a day to break even. Mindblowing to think how many of these places are struggling.

The restaurant industry is one of the most difficult businesses to make money.  There will be way more closures this year than last year...

4 hours ago, Luminare said:

 

From reading the article, apparently they switched to a different concept than what they originally had. Thats very risky in a location like that. You kinda need to be uber confident in what you have from the start, roll with it, and advertise the hell out of it. So seems its not necessarily the locations fault, but shift in concepts which probably sunk what little they had already.

If that space gets leased at the asking rate it needs to have a heavy dose of alcohol sales or be packed to the gills.  Only problem with that is parking..Ive been to Buff Burger on a Saturday and I couldn't find parking.  Two restaurants in that development makes for very little parking.  What will happen if they lease that inline space????

8 hours ago, clutchcity94 said:

Good insight- thanks. But will rents in Montrose ever drop in the near future? I just don’t see that happening, yet there are restaurants closing left and right in the neighborhood.

Texadelphia closed their Montrose location a day ago....but will rents ever drop?  Just depends how much money a landlord has for holdover costs when it's vacant.  If they own the property out right then there is no telling how long they would be ok with it just sitting dark.  Maybe this is how its supposed to be...we never had this many restaurants in years past.  This explosion only began in 2010...prior to that there were not many options.  Thats also when restaurants were in business easily for 20+ years.  Keep in mind a lot of these restaurants used to be properties where either houses used to reside or commercial property for other types of business.

3 hours ago, KinkaidAlum said:

Landlords are in for a rude awakening. The market is/has changed and Amazon, First Dibs, etc... is killing hard retail. If they chase off restaurants as well they'll be in big trouble. Retailers are hurting in every market but rent keeps rising. What I noticed most about the Rice Village was that in the two years since I moved away, there are vacancies everywhere where there used to be none. It's the same in LA's upscale neighborhoods. Vacant buildings sitting with outrageously high rents. Something has to give.

The likes of Amazon have definitely changed the landscape of retail fronts.  Drive down Alabama and a ton of empty spaces line left and right.  Heres the problem....The City.  The City wants its taxes...the best way is to over evaluate the Value of land and improvements.  That also drives the cost of rent up in the form of triple net fees that are now $15+ sq ft alone.  Most of that due to the ever increasing taxes.

Its also why new homes are so damn big...the cost of dirt is outrageous.  The only way a home builder gets their return is building a oversized house and slapping a price tag of $2mil+. 

1 hour ago, clutchcity94 said:

How do the thousands of mom and pop restaurants stay open in places like Manhattan, Washington DC, and San Francisco?

The key word is "open", doesn't mean profitable.  A huge amount of restaurant owners are breaking even or making just enough money to get by.  If you ever have spare time, go and visit the Texas comptrollers office...sit there and listen.  You'll hear a lot of business owners owing back taxes...borrowing from Peter to pay Paul but eventually over time it catches up.  

Open doesn't necessarily mean successful...its easy to get caught up in that.  I would be lying if I said everyone is in the same boat because yes some are making a very good living with strong concepts and tightly run establishments but most are not.

Not the best example but look at Trudys in Austin...nobody knew they owed 4 million in taxes.  One group here in Houston...The Treadsack group...they also owed investors and the government money.  All we knew was they have to be doing amazing because they keep opening restaurants.  One more example...Verts Kabob...they came and went but at the time the perception is wow they are doing amazing because they blew up all over....Nope.  

It will always boil down to solid economics and right now its a disaster out there with astronomical rent coupled with increased labor and food costs.    

13 hours ago, clutchcity94 said:

They basically would have to sell $6.65 worth of food per hour for every hour they’re open in a month (~2,200 hours) just to cover rent. This of course doesn’t account for their other costs like ingredients and paying staff.

 

What are the margins in the restaurant business such as this?

There are none...thats why they closed but typically a strong operating restaurant is right at 13-17%.  This is why your'e seeing out of state/city concepts popping up all over Houston.  They have more stores to pull from for capital.  Mom and Pop restaurants are disappearing being replaced with larger chain concepts.  Have you driven through Rice Village lately...all those original restaurants are just about all gone.  The asking rent is more than doubled.

So while they (Buff Burger) may have seemed busy and they did always look busy it was never going to be enough to make any money.  I dont see any restaurant making a profit in that location that is worth all the effort and headache of operating one.  Its my speculation that the Alabama and Westchase locations were pulling funds from their original I-10 location to stay a float.  

Another concept thats on the way out is Fajitas a go-go off of Kirby.  The rent there all in is $11,800 a month and its never that busy.  Its only 1500 square foot space with 13 parking spaces.  That restaurant is currently advertising their space for lease. 

Its officially on the market for $14,633/month all in.  That folks is a lot of $$ requiring a ton of burgers to cover it.

18 hours ago, clutchcity94 said:

lending is as cheap as ever now.

Cheap lending leads to over borrowing...a lot of growth not because of increased sales to each location but rather more traffic because of more locations.  The economics still have to work to pay back any loan whether is cheap money or not.  This is the mentality of a lot of retail/restaurant growth:

Location 1 has EBITDA of lets say $15,000/month.  Look Mr Bank/Investor...if we can open 10 more locations they all will make $15,000/month therefore we can pay our notes as we grow.  Too many retailers/restaurants have this growth strategy.  What they failed to realize is the more locations you open the less each location actually makes because you've made it more convenient for consumers to eat/buy your product closer to them.  They aren't purchasing more often because its more convenient and the industry statistics support this. So now you have diluted traffic to each store however the operating expenses are still the same for each location.  Oh and then there's that note you still have to pay back .

This is where we are now.  Bad economics and oversaturated markets in addition to inflated rent.

Just now, clutchcity94 said:

If demand is low (i.e. lots of empty storefronts all over Montrose), shouldn’t rent decrease?

The listing of lower rents is going to take some time as landlords are now so accustomed to the inflation of rent over the last 10 years.  The market is in the process of correcting itself but that could take a couple of years to really set in.  For the last 10 years restaurants have been on a tear in growth but as we are finally witnessing the "cheap" lending and over growth with a changing market is finally starting to show its true colors.  

Korny Vibes will be around for a while especially with the hot trend of plant based alternative eating.  The newer generation of consumers will fuel the success of this concept.  You can already tell by the crowds it drawing in now.

The rent is simply too high now in the Houston area.  When you're paying $50+ sq ft not including NNN's you better have strong sales and margins to stay open.  Couple that with an over saturation of restaurants makes for a tricky equation.