Real Estate Subway Series, Brooklyn Stop by JudyNetworks.com

The 0

Real Estate Subway Series Brooklyn Stop

Industry City

The Power of Home Staging

BKLYN Home to NYC’s Priciest Neighborhoods

Commercial Real Estate Booming in BK

Paramount Realty Sells Trump’s Childhood Home

Destinations 11:00AM

- 1:30PM

1:30PM

- 2:00PM

Broo kl

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Registration, Exhibit & Lunch Network with Exhibitors • Enjoy a Meal • Get Your Goody Bag • Get prepared for a day filled with awesome information!

Opening Remarks & Keynote Meet Judy Sahagian, The Mastermind of the Real Estate Subway Series

Only Brooklyn State of The Market

2:00PM

- 2:45PM

Dan Marks, Partner, TerraCRG Adam Hess, Partner, TerraCRG Peter Schubert, Partner, TerraCRG Chris Havens, Managing Director, TerraCRG

Paramount Realty USA’s “The Art of The Auction

3PM -

3:45PM

Meet the man behind the double sale in 60 days of Donald Trump’s Childhood Home. Learn how you can close more deals with “The Art of The Auction”.

Meet Industry City CEO Andrew Kimball

4:00PM

- 4:45PM

Industry City is one of the hottest developments in Brooklyn right now. Meet the CEO, Kimball, who will explain the twists and turns of running a development of this caliber.

4:45PM

6:00PM

- 5:00PM

- 6:00PM

- 9:00PM

Closing Raffles

Cocktail Hour & Continuation of Silent Auction

After Party

Meet Mike Polsky, The Sports Auction Man! He works hard to support charities of all kinds through silent auction events. The items range from unique Sports Memorabilia to Fine Jewelry. All proceeds go to a charity of choice. 2

5:00PM

Drink & Be Merry!

Boom!

Tracks

06. Industry City is One of 5 Billion Dollar Projects That Will Transform NYC by 2035

Thank You For Joining Us Today! The Brooklyn Stop of the Real Estate Subway Series is an exciting destinaton. We are proud to highlight this very special part of NYC. Learn about the many interesting trends in BK real estate, and connect with leaders of the commercial & residential real estate industry which is always booming in BK!

Judy Sahagian Real Estate Subway Series

10. Brooklyn Home to 4 of NYC’s Top 10 Priciest Neighborhoods

14. Brooklyn’s Commercial Real Estate Market Continues to Show Strength

17. Going, Going, Gone: How to Bid Smart on Your Next NYC Home

21. Stage it! Sell it! The Power of Home Staging

39. How Much is Your Restaurant Really Worth?

Producers: Judy Sahagian, Judy Networks John Sanchez, Queens Ledger - Brooklyn Star Newspaper | BQE Media Mark Neuwirt, Expos Your Business Robbyne Kaamil 3

The Real Estate Subway Series Photo Credits: Will Cadena Photography

All Aboard!

The Real Estate Subway Series was created by Judy Sahagian who is the founder and president of JudyNetworks LLC in 2010. Judy is an expert in the Commercial Real Estate industry and has represented some the world’s most powerful and influential real estate developers, investors and brands with projects and developments in New York City, Mexico and now Marbella Spain. The Real Estate Subway Series consists of one day conferences in each of the city’s boroughs. The series has now expanded to other areas including Long Island. Every Year The Real Estate Subway Series visits each borough highlighting the Developments, Businesses and professionals within the Borough and most importantly the culture. Each of the city’s boroughs has it’s own unique vibe and culture. This unique quality and diversity is what makes NYC one of the best places in the world to visit, live and work. By jumping aboard the New York City Real Estate Subway Series you will get an opportunity to network with the city’s most dynamic power brokers and deal makers in the real estate sector. We strive to give local businesses an opportunity to have citywide reach. Many of your competitors fail because they don’t have access to the right information and sources. Don’t let their mistakes be yours. Your attendance at our series will grant you a VIP All Access Pass to everyone and everything you need to take your business to the next level. We also provide our attendees information on hidden gems that many people still aren’t aware of like the Empire Outlets or NY Wheel in Staten Island and the hottest new development areas in the city like the Bronx. Did you know that Queens has the most hotel development in the city or that Brooklyn houses some of the most forward thinking entrepreneurial projects such as Industry City and the art communities of Bushwick? You will learn these facts and more at our events. By getting involved with the New York City Real Estate Subway Series as a sponsor, speaker or attendee you will granted access to an engaging platform where people are committed to your success. Businesses build relationships throughout the city that would not have been possible without their attendance at our events. Be sure to jump aboard one or more of our stops as we tour the boroughs and beyond to give you the best that each area has to offer <3

Sincerely,

Judy Sahagian

Stand clear of the closing doors, please.

The revamped Industry City will feature a hotel, shops, and a 16-building hub for tech startups.

Industry City is one of 5 Billion Dollar Projects

That Will Transform NYC

by 2035

The current buildings and streets in Industry City, an industrial complex in Brooklyn’s Sunset Park neighborhood, date back to the 1890s. But a major redevelopment project is set to give them a makeover — the revamped

As seen in

Industry City will feature a hotel, shops, and a 16-building hub for tech startups.

By Business Insider, 2017 New York City has a number of ambitious development and infrastructure projects underway. Manhattan’s most recent transportation upgrade came in the form of the glistening, $4.5 billion Second Avenue subway line, which opened on January 1. On the other side of the island, Hudson Yards — the most expensive real estate development in American history — is under construction. And on an island in the East River, Cornell University is building a glassy tech campus with classrooms, a hotel, restaurants, and shops for future graduate students. By the middle of this century, the city will look different, and will likely attract even more new residents and tourists than today.

From Manhattan to Brooklyn, here is a look at some of the most substantial projects set to be completed in the next two decades.

The World Trade Center Site

Since the September 11 attacks, New York City has been working to redevelop the 16-acre Manhattan site where the Twin Towers and surrounding buildings stood. As of January, 2017, 1 World Trade Center (also known as the Freedom Tower, the tallest skyscraper in the city), 4 World Trade Center, 7 World Trade Center, a new transit hub, the 9/11 memorial and museum, a mall, and a park are all complete. Two more towers, a small church, and a performing arts center are still in the works. Construction is set to be finished by 2020.

Essex Crossing

Located on Manhattan’s Lower East Side, Essex Crossing will feature 1,000 apartmentsavailable to low-, moderate-, and middle-income residents.

The $1.1 billion development will also include a Regal movie theater, a new street market, a bowling alley, and a cultural space. The once-abandoned site, which features many parking lots today, is the result of a failed 1960s urban renewal scheme by mid-century developer Robert Moses. Construction of Essex Crossing began in 2015 and is set to be complete by 2024. 2020.

Hunters Poont South

Hunters Point South will be a 30-acre mega-development in Long Island City, Queens that prioritizes affordable housing — the largest of its kind in New York City since the 1970s, according to Curbed. Over half of Hunter Point’s 5,000 units will be offered below market rate. Gothamist reported that over 93,000 people applied for the apartments in 2015. The site will also feature a school, retail, restaurants, and a waterfront park with a ferry. The project broke ground in 2013, with the second of three phases expected to be complete in 2018. There’s no word yet when the third phase will be done, but so far, Hunter’s Point South has received over $2 billion in private investment.

Pacific Park

Formerly known as Atlantic Yards, the $6 billion Pacific Park project will bring 6,430 new apartments (2,250 of which will be priced below market rate), an eight-acre park, and a variety of shops to Prospect Heights, Brooklyn. The site already boasts the world’s tallest modular apartment building, which opened in November 2016. The full Pacific Park development should be complete by 2025.

Industry City

Industry City is an innovation ecosystem that serves to benefit its tenants and the wider community. Its 35 acres is located on the waterfront in Sunset Park, Brooklyn. Owned by Industry City Associates, the complex is home to a di-

verse mix of businesses encompassing artisans, garment manufacturing, data centers, and warehousing. In 2009, Industry City began attracting artists by building 30,000 sq ft (2,800 m2) of artists’ studios and conducting creative events such as film screenings and art installations, such as the Marion Spore project.[33] Industry City hosts Brooklyn’s Fashion Weekend, a biannual exposition showcasing the work of local and international fashion designers. The current buildings and streets in Industry City date back to the 1890s, but a major redevelopment project is set to give them a makeover — the revamped Industry City will feature a hotel, shops, and a 16-building hub for tech startups. A full-scale renovation plan was announced in September 2011. The 10-year program will include repaving the streets that separate the property’s buildings, bulkhead renovation to the buildings that line the waterfront, installation of overhead power distribution and buss ducts, and a complete modernization of the property’s 150 elevators. Construction started in 2012 on the multi-billion-dollar project, but developers have not announced a completion date yet.

“

“When you look at a successful industrial renovation that is focused on the innovation economy, artists play a very important role,” said Mr. Kimball, who is the director of innovation economy initiatives at Jamestown and the chief executive at Industry City. “What we need to do is blend that with the maker community, with job-generating industries, and this is really our top priority.” Andrew Kimball, Industry City

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AN INSIDER’S LOOK

BROOKLYN HOME TO FOUR OF NYC’S TOP 10 PRICIEST NEIGHBORHOODS

by Eliza Theiss,

Property Shark

With the verticality of New York City’s real estate prices, headline-making residential sales are a common occurrence for the city that never sleeps. Even with current market conditions – call them stabilizing, cooling or correcting – many of the Big Apple’s neighborhoods are posting dizzyingly high prices.

lowed by Boerum Hill with 104% and DUMBO with 76%. While Brooklyn is certainly an attractive market for homeowners and investors, price trend indicators in the borough’s hottest neighborhoods, were skewed by a wave of closed sales, especially in new developments such as Pierhouse.

As the first quarter of 2017 came to end, we were curious to find out just how hot – or not – New York City’s real estate market was at the beginning of the new year.

Boerum Hill, for example, registered 93 of its 139 first quarter sales in The Boerum, while out of DUMBO’s 55 sales, 31 transactions closed at 51 Jay Street. Closed sale prices at this DUMBO luxury condo development start at the $1 million mark and go as high as $5,995,000 for a penthouse.

Although 20 of the city’s 50 most expensive neighborhoods noted year-over-year median sale prices trending downwards, several neighborhoods saw prices explode. Largely due to a sales surge in new developments, Brooklyn boasts 4 of New York City’s 10 most expensive neighborhoods, marking one of its strongest first quarters in years. Brooklyn Heights saw the greatest price appreciation in the city at 127% year-over-year, fol-

Manhattan dominates with 6 neighborhoods in our Top 10 and 23 spots in our Top 50. Thanks to a 55% year-over-year price appreciation that pushed its median sale price above the $5 million mark, TriBeCa marked its second consecutive quarter as the most expensive neighborhood in NYC.

â&#x20AC;&#x153;

Closed sale prices at this DUMBO luxury condo development start at the $1 million mark and go as high as $5,995,000 for a penthouse. Eliza Theiss,

Property Shark

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The perfect home, The perfect mortgage. Your prospective buyers don’t have to look far for the right financing solution. Our jumbo loan options, the HSBC Premier and Advance Deluxe Mortgage1, offer the following benefits: • Pricing incentives and discounts on a variety of fixed and adjustable rate mortgages (ARM) • Up to $3 million in financing • Mortgage solutions for international buyers • Title vesting for U.S. corporations and U.S. limited liability companies • Closing cost credit of up to $1,500 for Premier Deluxe Mortgages • Favorable rates on cash-out refinancing

Brooklyn, Queens and Staten Island Areas Thomas Cudahy, NMLS #99183 Mortgage Sales Manager, VP 800.873.6539 thomas.b.cudahy@us.hsbc.com

Bronx Area Louis Tesoriero, NMLS #78196 Mortgage Sales Manager, VP 855.202.0058 louis.x.tesoriero@us.hsbc.com

Manhattan West Area Anthony J. Masseria, NMLS #410099 Mortgage Sales Manager, VP 866.846.6641 anthony.j.masseria@us.hsbc.com

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1. These mortgage options require a Premier or Advance relationship. To learn more about relationship requirements or to apply, your potential buyers may contact an HSBC branch or call 866.801.6756. Mortgage and home equity products are offered in the U.S. by HSBC Bank USA, N.A. and are only available for properties located in the U.S. Subject to credit approval. Borrowers must meet program qualifications. Programs are subject to change. Geographic and other restrictions may apply. Discounts can be cancelled or are subject to change at any time and cannot be combined 13 with any other offer or discount. Equal Housing Lender.

TERRACRG RELEASES 2016 BROOKLYN INVESTMENT SALES MARKET REPORT

BROOKLYN COMMERCIAL REAL ESTATE MARKET CONTINUES TO SHOW STRENGTH

by TerraCRG, Brooklyn, 2017 TerraCRG, Brooklyn’s leading commercial real estate brokerage firm, released their 2016 Year-End Brooklyn Market Report, examining trends emerging across all commercial sales in the Brooklyn market in 2016. TerraCRG’s seventh annual report verified a total of 1,504 commercial sales in 2016, with a total consideration of approximately $7.8B. As expected, after a six-year run up in the Brooklyn market, sales volume began to level off this past year. Transactional volume saw a 20% decrease, however, the average price

per SF of properties increased across all asset types. The largest price per SF increase was in the multifamily sector, which saw a 17% increase from 2015 to 2016 and represented the asset class with the highest dollar volume, totaling over $2.69B. Across all asset types, the average transaction size in Brooklyn is now $5M, up from $1.3M in 2010. The sale of four Watchtower Portfolio assets represented 11% of 2016’s total dollar volume. The assets, 25 Colum-

“

While inventory continues to be tight, prices of walk-up multifamily assets are expected to remain very strong. Ofer Cohen,

Founder & CEO of TerraCRG.

bia Heights, 124 Columbia Heights, 85 Jay Street and 6177 Adams, totaled for approximately $855M. Without the completion of these transactions, the adjusted dollar volume would have been approximately $6.9B, slightly higher than the predicted $6.5B. As anticipated, transaction volume for residential development sites dipped mid-year, but showed signs of recovery in Q4 with a total consideration of $568M, aided by the Watchtower sales.

“In 2017, we expect the Brooklyn market to continue to stay strong. With no major portfolio trade such as the Watchtower, total dollar volume will either plateau or decline slightly. While inventory continues to be tight, prices of walk-up multifamily assets are expected to remain very strong,” said Ofer Cohen, Founder & CEO of TerraCRG. About TerraCRG

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Copyright © 2017 Emigrant Mortgage Company, Incorporated - NMLS#1577 (Emigrant). All rights reserved. Emigrant is a subsidiary of Emigrant Bank, Member FDIC. Emigrant is an Equal Opportunity Lender and an Equal Opportunity Employer. The information, products and services contained in this advertisement are believed to be correct but may include inaccuracies, typographical errors and/or omissions. Emigrant does not guarantee the accuracy of the data contained herein. All loans are subject to submission of a complete application, underwriting review and credit and property approval by Emigrant. Not all products and/or programs are available in all states and/or localities and/or for all loan amounts. Other restrictions and limitations may apply. Emigrant’s commercial mortgage programs/products are offered through Emigrant Funding Corporation - NMLS#1597 (EFC) a Subsidiary of Emigrant Bank. EFC’s loan programs are limited to loans that do not meet the definition of 16 residential under applicable state laws. New York Mortgage Banker License*, New York State Department of Financial Services, One State Street, New York, NY 10004, 212.709.3500. Emigrant is registered or licensed with the Banking Departments or Divisions in CT, MA, NJ, FL and PA. *Mortgage Banker activities authorized pending issuance. /// 04/05/2017.

Going, going, gone: How to bid smart on your next NYC home By Emily Nonko It’s just a matter of time before you can bid on the childhood home of the country’s most talked-about man. Republican presidential nominee Donald Trump lived at 85-15 Wareham Place in Jamaica Estates, Queens, from birth until he was a young boy — and Paramount Realty USA will soon auction the property off to the highest bidder. A few months ago, the home hit the market for $1.65 million via a typical broker but failed to find a buyer. The owners, who are empty nesters, want to sell the 2,500-square-foot Tudor — which has five bedrooms and a two-car garage — fast. They decided to auction it instead. “They were not sure of the value because of the connection to Trump,” says Misha Haghani, principal of Manhattan-based Paramount. “The auction is the ideal mechanism for selling a unique property like this.” Haghani has set the starting bid at $849,000. Paramount just might boast one of New York’s most diverse real estate portfolios. In recent years, it has auctioned off everything from six penthouse condos at Brooklyn’s 1 Hanson Place (which sold at deep discounts, between $1.3 and $2.5 million) to a mansion estate in Connecticut to 64 New York City properties damaged by Hurricane Sandy (the lowest-priced home on Staten Island sold for $35,000). In total, Paramount has auctioned over $2 billion of real estate, according to Haghani. The firm doesn’t specialize in foreclosure or bankruptcy auctions, but is instead a “marketing firm,” as Haghani puts it, to sell unique real estate more swiftly

than traditional brokerages. When such homes end up on the auction block, it’s an opportunity for committed buyers to snatch them up for less than market value. But if you’re a buyer starting to salivate at the thought of bidding on your dream apartment for cheap, beware: Lots of preparation and research are required before you hold up a proverbial paddle. While auction houses try to track down non-distressed properties to auction off — like Trump’s old abode — the most common real estate auctions stem from foreclosures. It’s usually a cyclical business, Haghani explains, because market busts result in more foreclosed properties that eventually end up on the auction block. But even as the average sales price for New York City apartments hovers around record highs, the second quarter of 2016 saw a surge in first-time foreclosure auctions. The successful auction of 673 properties in the city marked a level unseen in the past six years, according to a report by PropertyShark. And in the third quarter of this year, first-time auctions were up 24 percent compared with last year, with 525 homes scheduled to hit the block. Most auctions are of outer-borough homes, but the two priciest foreclosure sales this year happen to be Manhattan condos. The most expensive sale of 2016 so far is a condo at 340 W. 86th St., a three-bedroom, 2,400-square-foot pad which sold to an LLC for $2.4 million in March, PropertyShark data shows. The runner-up was a condo at 263 W. 73rd St., a 1,580-square-foot penthouse auctioned to Wells Fargo Bank for $2.22 million. As seen in the 17

1919

Cathy

Hobb

Stage It! Sell It!

The Power Of Home Staging We’ve all heard of spring cleaning, that annual rite of passage when it’s time to purge! If only all home sellers followed the “one in –one out” rule, perhaps not as many properties would linger on the market, awaiting that perfect buyer with enough vision to see a properties true potential through all the clutter.

Enter reality! Today’s buyers not only have bargaining power, but their choice of properties, which makes them a savvy if not picky bunch. Home sellers must have the same savvy if they wish to sell their properties for top dollar in the shortest amount of time. Home staging is the key to this success. The beauty of home staging is that it does not have to cost a lot of money to achieve a jaw dropping transformation. The first step is to have a professional home stager, agent or friend, walk through the property objectively, pointing out potential negatives that could sink a sale. If they notice something negative, potential buyers will too! When it comes to quick, easy and affordable home staging tips, clearing out the clutter is at the very top of my “to do” list. Remember, when a home seller puts their property on the market it is no longer their home, but a product on the market for sale, similar to an item on a grocery store shelf and in order for that property to attract the most number of buyers possible it must be portrayed in the best light. Properties that are worn, tired and worst of all cluttered simply do not show well. Most potential buyers are not looking for worry and work, they are looking for properties that are “move in” ready and properties that aren’t, those so called “handy man specials” will be forced to have price tags that reflect their shortcomings.

What is Staging? Staging in basic terms is preparing a home for sale so that it appeals to largest amount of buyers and sells for the most amount of money in the shortest amount of time. Staging can also involve the following: • • • • • •

Space planning De-cluttering Neutralizing Painting Minor Repairs Renting Furniture and Accessories

Home Staging 101 The first step for many homeowners will likely be packing away all non-essentials. Many stagers call this a “partial pack or move”. The goal is to remove all items including furniture not needed for the staging and marketing of the property. The next step may likely involve the execution of tasks such as repainting and the completion of minor repair work. The last step is the staging and styling, which may involve using a homeowners belongings or renting the furniture and accessories inventory of a professional home stager. When it comes to home staging, here’s my Design Recipe: • • • • • • • • • •

Remove all clutter Pack away any and all unnecessary items and furnishings Re-paint Replace light bulbs with higher wattage bulbs Replace light switches with new receptacle covers Clean and steam carpets Hire a professional cleaning crew Complete minor repairs Put furniture into storage if necessary Rent furniture or accessories to complete the look

Cathy Hobbs, ASID, LEED AP, CSP • Emmy Award Winning TV Host, Interior Designer • Owner: Cathy Hobbs Design Recipes • Luxury Real Estate Staging & Styling • www.cathyhobbs.com • Direct: 917.842.1075 • Executive Producer/Host • Design Recipes on WPIX-TV • www.pix11.com/designrecipes We Are The Exclusive Staging Company And Proud Member of The Property Planners • www.propertyplanners.com

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Charity Corner

As an industry expert and leader in the sports marketing field, including his many years helping to grow successful companies including Steiner Sports and Professional Sports Publications, Mike Polsky recently launched Polsky Sports and Entertainment. Based in New York City, the company specializes in sports memorabilia, athlete experiences and appearances, silent auctions at charity events, event tickets, hospitality venues, and much more. Considered an authority in the business, Mike's clients are a who's who in sports, business, and philanthropy. Michael Polsky CEO & Founder Polsky Sports & Entertainment Phone: 646-361-8939 Fax: 646-786-4112 Email: mpolsky@teampolsky.com www.teampolsky.com

Mission: to improve the lives of youth developing their artistic talents, creating opportunities for them in theater, film and entertainment, and encouraging them to pursue their dreams while building character. Moving Mountains Inc. is a 501c3 founded by Jamie Hector in 2007 and has been providing professional training and positive outlets/ productions for thousands of inner-city youth. Moving Mountainsâ&#x20AC;&#x2122; primary purpose is to provide inner-city youth with a safe place to develop their talents and pursue their dreams while building character. Moving Mountains focuses on their strengths helping them to move obstacles that can seem mountainous. Moving Mountains works to take away the lack factor, (lack of money, lack of knowledge, lack of support) providing youth with the tools they need to pursue careers in all areas of entertainment. Contact info for further information: Alaine Roberson 195 Plymouth St., ste. 4-5, Brooklyn New York 11203 Phone: 347 365. 6057 Email: movingmountainsinc@gmail.com Website: www.movingmountainsnyc.org

Pep Up Tech is a nonprofit that exists to introduce children and young adults to computer science. We do this by partnering with community-based organizations and giving them the tools and resources they need to integrate computer science components into their existing curriculum. Pep Up Tech was started by members of the Salesforce user group community across the United States. As active community volunteers, we know firsthand the immeasurable benefits of mentorship, exceptional training, and being surrounded by likeminded peers. PepUp Tech runs two core programs: The first is the Salesforce Summer Bootcamp for College students: PepUp Tech partners with Colleges and Universities to deliver a fully immersive 2 -day bootcamp, where they will gain insight into the technology industry and to learn about application development on the Salesforce platform. The second is the Pep Up Tech Summer Explorers Program held in partnership with a local summer day camp program in the Bronx New York Get Involved and Learn More: Learn more about our organization at www.pepuptech.org Join us for our Spring Cocktail hour this May: www.pepuptech. org/events. Volunteer and make a difference in a childs life: www. pepuptech.org/ 29

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Will Cadena Will Cadena has been involved in the world of photography for as long as he can remember. Two of his uncles own and operate successful photography businesses, where Will worked and learned from the time he was about 13 years old. While working for his uncles, one doing commercial and advertising work, the other doing weddings and portraits, he learned the basics, and also two very different styles of photography. Throughout the years, Will has merged these two styles, while incorporating his own ideas and visions. His own style has evolved over the years, as he continues to learn from, and teach to, some of the most well respected photographers in the business. His inspiration comes from all around him, as he loves to travel, dance, learn many styles of hand to hand combat, including Systema and Krav Maga, and seek out new adventures all the time. Will Cadena has personally trained his staff with the most current trends and uses the highest quality equipment. His edgy team of talented photographers have the experience to make any photograph look like one in a million. To Cadena and his staff, photography is their passion and life. Going to work every day is a joy and the team can make anything the perfect canvas for a photograph. www.WCimagery.com

Will Cadena

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How Much is Your Restaurant REALLY Worth? By Paul G. W. Fetscher CCIM, SCLS; President, Great American Brokerage

Ownership of a restaurant is an emotional adventure. A typical restaurateur spends more time with their restaurant than they do with their growing children. Their restaurant IS their baby. So when it’s time to place a value on the business, their emotional commitment often prevents them from taking an arms length, objective view toward valuation. The trick is to have a balance between the two words “Restaurant” and “Business”. It takes a bit of discipline to use both of these words in the same sentence. We can love an establishment as a restaurant, but we must value it like a business. A restaurant is a substantial investment. Fifty percent of the buildout cost is invisible to the consumer. A restaurant requires 250% of the HVAC of a retail store the same size. It has an electrical need of 500% of a typical retail space and the plumbing requirements can be 1000% higher. All of those systems must be in place before you invest the first dollar in decoration, furniture, fixtures, equipment, signage, china, glass or silver. Also, similar to a shiny new car, these items depreciate the first moment you turn the key and open the front door. An appraiser of real estate will follow a prescribed method in determining value. First, will be to consider replacement value; secondly, compare the subject property to comparable properties and the prices they command in the open marketplace, and finally consider evaluation of cash flow. To determine replacement value, consider there is a vacant property across the proverbial street from the subject property. How much would it cost to replicate the restaurant? While this is certainly of interest, unfortunately, this is not the most reliable method. In the harsh reality of today’s marketplace, there are plenty of available seats in mature marketplaces and we find that there are more sellers than buyers. Obeying the simple laws of Supply and Demand, we know that such market conditions drive down prices. Sad as it may be, in the last several years, even the vast majority of profitable restaurants sell for less than they cost to build. In evaluating comparable properties, leasehold situations have numerous factors to consider. What is the term of the lease? Is there a differential between the rent under the existing lease and current market rents? Is there leverage of the purchase price via seller carried financing? Does the transaction involve the real estate? Is the price allocation driven more by tax considerations than as a fair valuation of the business plus the real estate? Finding fair and truly equivalent properties can be difficult. With the complexities of the restaurant business, finding the right apples and apples to compare can be challenging.

Sometimes a restaurateur will sell the business at what appears to be less than the business is worth, but will retain a long term benefit through a lease transaction as he retains ownership of the real estate. Let’s now apply some basic “Rule of Thumb” principles to establish a valuation of the restaurant business, inclusive of the real estate. Different investments demand different returns on invested capital. If you go to a bank today and you invest $1,000, there’s neither risk nor work involved. Therefore, banks attract depositors all day long by offering interest rates in the low single digits. In a piece of real estate, there may be more market risks, but as an owner of rental property, for limited effort, you have confidence that in 20 years you’ll have a paid off piece of real estate that will be worth at least double today’s cost. Investors in that sort of property are willing to accept a return in the high single digits. A restaurant business operator is at risk and therefore his investment requires a constantly attentive management. Even if you have a long term lease, short of negotiating a new lease, the future value is zero. There is always chance of failure. Therefore a restaurateur must command a higher rate of return in the range of 25% - 35% to justify the investment. So let’s apply these rules of thumb to a hypothetical restaurant with sales of $1,000,000 per year. As recommended in Urban Land Institute and International Council of Shopping Centers publication, a prudent rent for a full service restaurant to pay is 6% of gross sales. In addition, there may be real estate taxes, but the net rent is 6% of gross sales equaling $60,000 per year. Putting on our landlord’s hat, if we have a building with $60,000 in annual income, and accept a 10% ROI (Return on Investment), we have a building that is now worth $600,000 in the open marketplace with that tenant in place. Now let’s look at the valuation of the business itself. Here is where we must separate a restaurateur’s job from his investment. In the case where an operator thinks he nets $200,000 per year, is that with or without a salary? Most restaurant operators I know put in anywhere from 60 – 80 hours per week. If he had to hire someone to do the same work, it would probably take at least one and one half people to cover his duties. Their cost in salary would likely total $100,000 per year. If we accept the $200,000 income to the owner, in all fairness we’d have to attribute $100,000 to

salary for the functions he performs and $100,000 as the actual return on invested capital. Perhaps the most important figure in restaurant valuation is the EBITDA, the earnings before interest, taxes, depreciation and amortization. Returning to our example, we have a cash flow on investment of $100,000 per year. If we agree that the operator would demand a 25% - 35% ROI, which would place the value of the business between $300,000 and $400,000. So adding the value of the real estate and value of the business, we arrive at $600,000 plus an average of the two ROI extrapolations, $350,000, for a total of $950,000 or slightly less than the $1,000,000 in sales. Complex as that may have been, it’s still not quite that simple. What is the condition of the physical plant? What are the trends and characteristics of the location and the local marketplace? What is the length of the term of the lease? Many Restaurateurs like to compute the value of the difference between their current rent and what market values may be. If it’s $40,000 under market and a 10 year lease, they like to think that the value of that component alone is worth $400,000. Wrong! If your lease is under market, then the value flows to the bottom line in the form of current additional cash flow. The EBITDA has already accounted for that factor. We now need to gaze into our crystal ball and determine, “What is the probability of sustaining or increasing that cash flow? When a restaurant is sold, other than in a rare occasion, there is additional expense. We often see signs saying “Under New Management”. How many promise “Better Management”? In a takeover, let’s not forget the additional cost of change. A new operator invariably wants to put his fingerprints and personal touches into the restaurant. This usually is a good thing. I often reflect on the wisdom of Barbara Kafka, a New York author and restaurant consultant: “In the restaurant business, you must change … if only for the sake of change”. Paul Fetscher, CCIM, SCLS is president of Great American Brokerage Inc., a firm specializing in finding locations for restaurants and buying and selling businesses. He can be reached at GtAmerican@ aol.com www.RestaurantExpert.com 39

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