The Art of Selling a Restaurant
Selling a long-standing restaurant is no easy task. Take Merle Borenstein, who opened Armadillo’s Bar & Grill, a Southwestern eatery, in the then edgy Rondout area of Kingston, New York, in 1988, about 90 miles north of New York City. Or Ric Orlando and his wife Liz Corrado, who operate the New World Home Cooking, which has thrived since 1993, in nearby Saugerties.
After 29 years and 24 years, respectively, both owners recently put their restaurants up for sale. Over a year later, both are still operating their eateries, unhappy with the buyers who have come forward. As baby boomers move into their late 50s and beyond and look to retire or move on, an increasing number of eateries will likely be placed on the selling block.
But finding the right buyer is a complicated endeavor that requires the right financing, background, and a meshing of owner and seller. And that doesn’t come easily in many cases.
Borenstein, who just turned 72-years-old, sees Armadillo’s and the property above it that includes two apartments and the patio as her “nest egg.” The ideal buyer would be a person or couple with some restaurant experience that would like to walk into a successful, operational turnkey restaurant, she says. At the beginning, she wanted to ensure that her staff of a dozen or so including chefs (some of whom have been with her for 25 years) and wait staff was taken care of, at least for the first year or so, but now that no’s longer a prerequisite.
Nabbing the right buyer who has the finances to pay $700,000 to Borenstein for the property, and not damage the existing business, is tricky. Close to two years ago, she met with a commercial realtor in Kingston and signed a six-month contract to sell the complex.
Three buyers came forward to look but none had restaurant experience or possessed sufficient capital to buy it, without Borenstein’s having to assume a promissory note. “I don’t want to take back a failed restaurant,” she says.
The buyers included a manufacturer, a couple in real estate and nursing, and a professor. Some were long-term customers. But none knew how demanding and complex it was to keep a restaurant brimming with success. “They knew nothing about the back of the house, how to handle a staff or inventory,” Borenstein says.
In a smallish city like Kingston, the word got out that Borenstein was looking to sell. Rumors swirled that she was leaving, before anyone had even made an offer. She saw her business start to sag, not a major downfall, but off 5 percent and started to get concerned. Unnerved, she took the restaurant off the local market.
Currently, it’s listed for sale on several New York City-based websites including LoopNet, BizBuySell and CoStar, and she’s pondering contacting commercial brokers in Dutchess and Columbia, located across the river and not in direct proximity.
Now Borenstein tells perspective buyers, “Are you ready to be married to the business? You can’t walk away that easily.” She’s pursuing a well-capitalized buyer with a strong business background. But with Borenstein not getting any younger, like the famous “Jerry Maguire” saying goes, money talks.
Orlando, who beat Bobby Flay in a Food Network competition in 2015, is looking to sell New World Home Cooking because, “I’m 57. I started at age 33. It’s time to move on.” He spends several days a week in Albany, New York, helping operate New World Home Cooking, which is based on a licensing deal with partners.
Furthermore, the upstate market is a grueling business, he insinuates. Restaurateurs often thrive in spring and summer months and then “it’s a tough market with seasonability,” and trying to make it through the barren winters. “I’m in this building seven days a week, unless I’m out of town,” he admits, and the insistent workload can wear an entrepreneur down.
“We’ve defied all odds. Restaurants don’t last 23 years with one owner,” Orlando says.
But selling the restaurant and property for $600,000 hasn’t produced a buyer after a year’s lingering on the market. He listed it with a commercial real-estate broker and Orlando has one overwhelming criterion for selling: “If you can afford it and want to run a restaurant, take it away.” In fact, he says if the perspective owner has the wherewithal to nab a bank loan to capitalize it, “you can open the door tomorrow.”
Orlando is not retiring; he’s just gravitating to a variety of projects including developing a PBS series, working on a book project, and will still be involved in the Albany outpost.
Arranging the selling of an eatery is a complex, multi-layered affair, says Andre Neyrey, president of New York City-based Manhattan Restaurant Brokers & Consulting. Successfully selling a restaurant often involves an agreement among three parties: the landlord who owns the property, a seller, who if he or she is prospering is often reluctant to sell, and a buyer who strives to obtain the best price possible.
The frisson among the three can be combustible since “everyone has different wants and needs,” Neyrey stated.
Landlords often seek three major factors: cash, credibility, and credit. If the selling price is beyond what a buyer wants to pay, a promissory note is issued. “Then you need to make sure the buyer isn’t going to destroy the business,” Neyrey says.
Generally, landlords don’t participate in the sale money of the restaurant, but only get reimbursed for attorney fees to have the lease reviewed, Neyrey says. However, in some cases, landlords will include a clause in a lease that they obtain 10 percent of the sale price if the lease is sold and, in unusual cases, it can rise to as much as 50 percent of the key money (term used for the sale price or the money it takes to get the keys). “That’s why it’s important to have the lease thoroughly reviewed by an attorney versed in restaurants,” he says.
Too often, owners often get emotionally attached to their business, which can lead to over-valuating it. And that can make finding a buyer difficult.
In New York City, which is a highly regulated environment, buyers need to ensure that they can obtain a liquor license, which can’t be transferred automatically to another owner.
Business brokers often help buyers ask the right questions and perform due diligence. Without a business broker, “It’s buyer beware. You better know about liquor licenses and the Department of Buildings,” Neyrey says. “Do your homework and consider potential issues first.”
For a deal to happen, “You need the seller, buyer, and landlord all have to walk away feeling like it is a win-win-win, and have some luck,” Neyrey adds.