By: Raj Tulshan, Founder of Loan Mantra
Is commercial real estate making a comeback in the hospitality industry? After several extremely disruptive years of a global pandemic – and the resulting lockdowns, inflation, supply chain disruptions, and staffing shortages – is the future finally brighter for hospitality and real estate? Is it time to invest in more bars and restaurants – and if so, where exactly should you invest and when do you know if it is the right time?
Investing in real estate is a major, long-term commitment requiring careful consideration. Business owners must do their homework before signing a real estate contract, thinking about a host of factors, including the building’s location, the economy, zoning laws, the projected value of the property, and its expected appreciation over the coming years.
Location is a huge factor. Is the property you’re considering in a good spot that will attract customers? Is the property attractive, in a safe, high-traffic location? Is the community vibrant and growing, with a history of economic stability? Is there easy access with ample parking, or is there a subway or bus stop nearby? What’s the neighborhood like? Is there considerable competition in your space, with tons of other bars and restaurants nearby? Is the neighborhood hungry (pardon the pun) for your type of establishment? Are the demographics right for your type of business? For instance, a heavy metal-themed bar might not flourish in a neighborhood with an older demographic.
Despite major difficulties in 2020 and 2021, the hospitality and commercial real estate industries are finally in growth phases again, and this growth is likely to continue in 2022. Some things to consider include:
People are going out again. Demand for in-person goods and services is rising again, as people want to eat at restaurants and go out for some beers. This pent-up demand is good for commercial real estate – and the bars, restaurants, and other businesses that occupy these buildings.
Hospitality is rebounding. Now that the worst of the pandemic is (hopefully) behind us, business and leisure travel will start increasing again, and people will be dining out more frequently. The growing travel demand means hotels, restaurants, and bars may take on renovation and expansion projects that stalled during COVID. And, increasingly, hospitality business owners will invest in real estate to house their bars and restaurants.
Secondary markets are growing. The evolution of remote and hybrid work means many employers and employees are moving out of high-rent cities into smaller markets that are more cost-effective. Recently, people have been leaving big, expensive cities like New York in droves, in favor of smaller, more affordable markets like Nashville and Tampa. If you’re thinking of opening a bar – or expanding your brand to new markets – consider these geographies.
Operators are opting for building ownership. Some restaurant and bar brands are opting to own real estate rather than leasing. When leasing, the building owner is making money, regardless of whether your business is profitable. However, when you own the property, you’ll be building equity regardless of how your business is performing. Many restaurateurs and bar owners are choosing to buy instead of lease because it makes more financial sense over the long term. If you’re the property owner, you won’t have to worry about surprise rent increases. You also won’t need to abide by your landlord’s rules, giving you more freedom with your business and your property.
Add new revenue streams to boost profitability. With labor shortages impacting the operating hours (and bottom lines) of hospitality businesses, restaurants and bars have realized the importance of having multiple revenue streams to increase profitability, especially if they’re working to cover the cost of their mortgage. Some brands are selling their own beers online or selling branded merchandise at their brick-and-mortar location and online. While people are finally coming back to dine and drink in-person, it’s wise to have additional revenue streams to keep a steady stream of revenue flowing – and so you can cover your mortgage and property taxes if you’re the building owner.
If you’re financially able to swing it, buying property for your bar or restaurant can be a wise move. As experts predict that the worst of the pandemic is behind us, it looks like the hospitality and commercial real estate industries are poised for a rebound. If you’re thinking about a real estate investment for your hospitality business, be thoughtful and consider the decision carefully before signing the contract.
About the Author:
Neeraj (Raj) Tulshan is the Founder and Managing Member of Loan Mantra, a financial advisory firm with best-in-class and proprietary fintech, BLUE (“Borrower Lender Underwriting Environment”). Loan Mantra, Powered by BLUE, is next-level finance: a one-stop-shop for business borrowers to secure traditional, SBA or MCA financing from trusted lenders in a secure, collaborative, and transparent platform. Clients turn to Raj because they know he will always pick up the phone and offer unparalleled financial counsel in a remarkably human—even friendly—way.
About Loan Mantra
Loan Mantra is a financial services company designed to serve small and medium businesses with offices in New Jersey, Charleston, SC and New York. At Loan Mantra your success is our success. This means that our attention, purpose, and intention are all focused on you, our client. We are your ally to overcome obstacles, bringing peace through uncertain times to achieve your highest goals and aspirations. Your friendly, responsive agent will listen respectfully, and service your account actively through one of three locations in the US. We speak your language whether it’s English, Spanish, Hindi, Bengal, Hospitality, Laundry or Manicure, let us help you today. Connect with us at…www.loanmantra.com or 855.700.BLUE (2583)