Not all Landlords are Created Equal

February 16, 2023

Restaurant Retail in South Florida

The Florida retail market skated through the pandemic relatively unscathed. After a few tough months, the rebound was indubitably strong. Inventory levels are at all-time lows, and mixed-use development is rising in popular neighborhoods such as Wynwood, Flagler Village, and downtown West Palm Beach. The restaurant scene is substantial; local businesses are expanding along with an inflow of national brands. Geoffrey Stevens of Florida Retail Brokerage Corp serves our team up with his professional insight.

Geoffrey Stevens - Florida Retail Brokerage Corp

Stevens specializes in retail restaurant leasing in South Florida. With over 30 years of representing tenants, he has helped dozens of landlords fill vacant spaces but primarily helps restaurateurs find the perfect space. Most of his clients are local or regional brands. Until recently, his business has been relatively straightforward, but today he notices a significant disconnect between some landlords, making his job slightly more complicated. Additionally, Stevens says the demand for restaurant space has pushed inventory levels near all-time lows. As the tenant rep, working out more favorable deals for your tenants is difficult.

Opposing Sides

On a recent deal in Wynwood, Stevens compares the contrasting lease terms of two prominent mixed-use development firms. His client is a local restaurant with three other market locations and solid local credit. The two spaces were identical, but the terms couldn't be more opposing. Stevens negotiated $150/SF in tenant improvement (TI), which is unusually high for the area. The closest landlord only offered $30/SF in TI and above market base rent. He explains less motivated developers are usually seeking a short-term flip. They would prefer to lease to national tenants, expecting a higher sale price with a higher national presence.

Stevens says there is yet to be a definitive trend for tenant improvement allowances. If the landlord is motivated and in a strong market, he has seen $90 to $120. Local landlords are on the other side of the coin, usually offering around $30 to $50 due to the rise in construction costs. Although the tenant improvements are lower, there is typically some leeway on the rent. Stevens' clients would prefer a higher TI and a lower starting rent because it enables the business to grow without financial strain. Local companies cannot afford the 25% cost inflation for new construction, and the double whammy of high starting rent can drastically impede their business from adequately growing.

Retail Case Study

It is in landlords' best interest to help their tenants succeed, and they could get burned if they do not support their tenants. He explains this on a recent relocation he did for a local restaurant. The original landlord was a large REIT that wasn't willing to support the business through a much-needed renovation. Steven's client had planned to renovate the space over the next few months. They had asked for rent abatement and a reasonable tenant improvement allowance during renovation. The reluctant landlord had no interest in either. Stevens, the expert he is, located another space for his client around the corner. This new space provided additional visibility, an outdoor patio, and lower overall rent because they leased less space. The tenant was thrilled and will be able to stay open at the current location during the new construction. The tenant's long-time landlord will soon have a space that will most likely be vacant for an extended period, primarily because of its size, lack of visibility, and reluctance on the part of the landlord to support its tenants. According to Stevens, landlord support for tenants will result in a better-performing center every time.

Beyond a Retail Broker - Introducing Florida Retail Scholarships Inc.

Introducing the younger generation into commercial real estate is a passion for Stevens. He is the President of Florida Retail Scholarships Inc., founded in 2021 to award scholarships to college-level students needing additional funding to pursue their desired field of study. Their most recent program brought 18 students to ICSC @Florida, resulting in multiple job offers and internships. Don't hesitate to contact Geoffrey Stevens or a Florida Retail Scholarships Board Member to learn how you can get involved in the program.

Rockval Key Takeaway

The South Florida landlords have the upper hand as second-generation restaurant space is limited. When choosing a broker as a restauranteur, we suggest someone with extensive local knowledge, as their rapport with the local landlords will help you tremendously when negotiating favorable terms. Steven's 30 years of experience and local knowledge give him a substantial edge in a tight market. In addition, he is putting this knowledge to good use with the Florida Retail Scholarship. The team he has built for the program will provide invaluable lessons to the next generation of commercial retail professionals. Expect to see a few of their students making waves in the Florida retail market in the near future.

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