Rent is a Function of Sales

When we lease space, we need to know the sales of the prospect. Rent is a function of sales. We NEED to know this whether it’s a renewal or a new prospect.

We just got a consulting gig for our restaurant real estate business Azor Brewer Restaurant Advisors. An owner bought a 5,000sf building with a restaurant tenant as a NNN investment. She thought she was purchasing a long-term cash flow.

The tenant just contacted her to reduce the rent because they cannot afford it.

The owner lives on the other side of the country and has no idea about the market comps for restaurant rents.

We went out and did a study of the market, then we analyzed the lease papers. The restaurant reported annual sales of $5M with $250K of annual rent. That is a 6% health ratio. According to the ULI Dollars and Cents book, that is well within the range for a restaurant with a liquor license. According to the market study we conducted, they are right in line with the average rents for restaurants.

So we concluded that the restaurant was simply trying to pull the wool over the eyes of who they thought to be an unsophisticated landlord. Tenants will try to do this to you too, leasing agents. KNOW YOUR HEALTH RATIOS!