Major regional mall and shopping center developers have put an emphasis on recruiting independent restaurateurs to locate in their projects across the country.
Such companies are looking for small chains—successful players with less than five locations—that may be ready to begin modest expansions. Developers see these players as a point of differentiation for their centers and a way of building credibility with local consumers. It sends a message that the center is not just another cookie-cutter mall with the same retailers and restaurants that you’ll find everywhere else.
And it’s not simply a one-way relationship. Regional malls are powerful draws of foot traffic. The most successful centers bring in millions of shoppers per year. Locating in a shopping center can provide restaurants with a vastly greater exposure than they can get on their own.
Retail Traffic Editor-in-Chief David Bodamer spoke with GGP’s Vice President of Restaurant Leasing Peter Haback about the trend of small restaurant operators locating in large shopping centers and asked what factors these players should consider when opening locations in shopping centers or regional malls.
Haback has worked for General Growth for almost 12 years as its head of restaurant leasing. Prior to that, Haback worked as a tenant representative for nearly a decade and worked extensively with restaurant clients including Morton’s The Steakhouse and Lettuce Entertain You, a company that operates 31 restaurant concepts.
Retail Traffic: What qualities are landlords searching for in vetting perspective restaurant tenants?
Haback: You’re looking at the expandability of it. Is this concept something that can work in additional locations—whether it’s one more or 50 more. Certain concepts will work some places better than others. A restaurant with a $100 average check is not going to work many places. But a concept that has a menu broad enough to work on a Tuesday, when a customer may want to simply go out and grab a sandwich or burger and glass of wine, as well as on a weekend when a customer may want to spend more is worth a long look.
We also look at their infrastructure. Do they have the capability to expand? Have they brought on the additional management expertise that they need to open the second or third location without harming their existing store or stores? We’ve all seen the great local restaurant that we loved open a second store somewhere else—maybe it’s a second concept or second location with the same menu—and suddenly they have two mediocre restaurants instead of one great one.
In addition, you have to look at their financial documents. Do they have the wherewithal to grow and the operating capital to sustain growth depending on where they are growing? It may be something that takes off from day one or something that takes a while. We want to know if they can fund the remodeling and have the operating capital in case they don’t have two-hour waits for tables the first night they open the door.
But there’s also a lot of feel involved. You have to have a good sense of the concept and get to know the operators. So there’s also a lot of “hard to quantify” judgment that goes into scouting restaurants.
RT: What are the differences small restaurateurs need to know about in operating in a shopping center as opposed to running a standalone location or one that’s in an urban setting?
Haback: The largest difference in expenses is that you have to deal with common area maintenance (CAM) and perhaps some other charges that you may have not had to deal with previously. If a restaurateur had owned their own building, they get a separate real estate tax parcel and had the ability to fight that. They also took care of maintenance themselves. But now for the first time they may have another party—a landlord—that’s giving you those bills. You may feel like you have less control over some of these expenses.
On the other hand, what you do get is a built-in customer that is going to walk by your front door. Most regional malls have anywhere from 7 million to 30 million people per year coming to a property. That’s typically an awful lot more that may walk by the front door of your current location. There’s a lot more people that are going to become aware of you and are coming there for so many more reasons.
If you are in a little town or in a freestanding location, people are coming to you frequently only because they’ve made the decision to come to you. If you are in a location with 100 retailers and some other restaurants and department stores, people are going to be coming to that location for many, many reasons. There is an opportunity to present yourself to people that you may not have been able to get in front of before.
RT: Beside CAM charges, are there other things tenants need to know about how mall leases are structured?
Haback:There are other rules and regulations that you probably don’t have if you’re freestanding. Perhaps you need to have some sort of special exhaust because the food odors can’t get into the common area. There may well be additional requirements including about hours.
On the other hand, there now may well be things that you don’t need to take care of, such as exterior maintenance, taking care of a parking lot, security. There’s a purpose for CAM charge and it does take a lot of items off of your plate. You can focus on the business of running a restaurant rather than get involved in areas where you may have less of an expertise.
Sometimes, as well, there is the ability to offer tenant allowance money. That can help with build-outs and remodeling costs. That’s available depending on the financial wherewithal of the tenant. We want to know ultimately that they will able to pay the rent, but it’s absolutely something that is open to discussion and negotiation.
RT: Why do mall companies like to bring in unique operators in addition to working with the larger chains?
Haback: It’s a point of difference. You want a property to be thought of by your costumer as being their property.
You want them to say, “I’m going to Northbrook Court. It’s five minutes away. I feel comfortable there. And they have local restaurants where they know me.” That way they don’t feel like their only option is to go to a chain that has 500 locations.
From our perspective, we want to give our customer more reasons to think he or she is coming to a unique place. It’s their place. If every tenant is someone that they see everywhere else, they they’ll be less likely to think of it as “their” shopping center.
So if, say, Joe Smith opened a restaurant there and they’ve always loved Joe’s downtown bistro, now they can see him out our center as well. And they might even have a personal connection already.
By bringing in these tenants we are giving you more reasons to come to our shopping center.
RT: Do you have any favorite examples of where you’ve brought a local restaurant into one of your centers?
At our Northbrook Court center, we brought in The Claim Company. It is run by Arnie Krause, Michael Holleb and Ted Holleb that got their start years ago working at restaurants at our center. The Claim Company had been a longtime Chicago-area restaurant chain that operated in for more than 20 years before closing in the late 1990s. It had a location at Northbrook from 1979 to 1998 before shutting down. They all worked as managers at The Claim Company before going on to other chains.
Recently, they bought the name and we were able to work with them to bring it to the mall. It’s generated buzz because people knew the name and were excited for its return. It really gets people excited when they know the operator and know the concept. It’s been a lot of fun being able to revive that concept.