Goat Hospitality Group is giving up on its Miami taco stand.
The Miami-based food and beverage firm recently put on the market its lease for Pilos Tacos at Paseo Brickell, a retail and restaurant center. Prospective restaurateurs interested in taking over a fully built-out 990-square-foot space with a kitchen and furnishings would pay a monthly rent of $17,000, an online brochure shows.
That’s not all. Goat Hospitality – which also operates bars and restaurants in Wynwood and South Beach – also wants $175,000 to turn over the keys.
“There are a lot of people looking for second generation restaurants,” said Fabio Faerman, who is handling the Pilos Tacos listing. “The tenant or the landlord of a restaurant that is closing can ask for key money. And [a new operator] is willing to pay for it.”
Pilos Tacos’ owner is part of a massive wave of flailing restaurateurs and restaurant landlords seeking exit strategies during one of the worst years in South Florida’s food and beverage game.
Through September, hundreds of restaurants across Miami-Dade, Broward and Palm Beach counties have closed or are about to shut down due to a slower-than-usual summer, dwindling numbers of out-of-town diners and oversaturated food and beverage concepts, commercial brokers and property owners told The Real Deal.
Yet, the spaces are quickly filled by a steady stream of prospective restaurant operators willing to pay six- and seven-figure sums on top of their monthly rent to take over fully built-out dining spots.
“It’s been a record year for the number of restaurants that have closed in South Florida,” said Felix Bendersky with Miami-based F+B Hospitality. “But people don’t see it or feel it because when one place closes, 10 operators are ready to take the space. The demand outweighs the inventory.”
A dining downturn exacerbated by rising rents
South Florida restaurant operators live and die by what happens during “season,” the fall, winter and spring months of the year when the tri-county region is teeming with snowbirds and other out-of-town visitors. The season usually begins in October and ramps up the first week of December when Art Basel Miami Beach and corresponding satellite art fairs take place. A good season usually provides restaurants with enough of a financial cushion during the slower summer months, Bendersky explained.
“Everybody is hoping that season comes back sooner,” he said. “Last year, the season didn’t really come back until Art Basel, and it was one of the slowest Art Basel weeks in several years.”
This summer turned into a restaurant Armageddon, he added. “You may have a couple of guys, the top 1 percent, who will say they killed it,” Bendersky told TRD. “But I can find you 100 others who say this was the worst summer on record. I’m constantly getting calls from clients asking how much their place is worth and can I get them out of their lease.”
The dining downturn has been indiscriminate, negatively impacting mom-and-pop restaurants and chain operators, alike. This month, the owners of Miami Design District restaurant Mandolin Aegean Bistro shut down Mr. Mandolin, their sister outpost in the historical Vagabond Hotel in Miami’s MiMo District. Craft brewery chain Yardhouse permanently also closed its sports bar and grill near Lincoln Road in Miami Beach after a decade of serving up brewskis and bar food fare.
Another chain, Fort Lauderdale-based BurgerFi, filed for Chapter 11 bankruptcy protection this month. In its filings, the company disclosed that it had abandoned leases at four restaurants in Hallandale Beach, Pembroke Pines and Delray Beach. It moved out of the spaces and notified the landlords several months ago.
Faerman, whose firm FA Commercial represents restaurant tenants and landlords, said more competition between restaurants with similar watered down concepts also led to a drop in sales for operators.
“You either need to have good quality, good prices or good location,” Faerman said. “If you don’t have one of those, the market won’t support it. Generally, a customer doesn’t give a restaurant a second chance.”
Chain restaurants like BurgerFi suffered from internal structural problems and overexpansion, Faerman added. “The market doesn’t support it,” he said. “And there are so many burger concepts out there.”
In recent years, South Florida has experienced a rush of entrepreneurs getting into the restaurant business, said Alex Karakhanian, principal of Miami-based Lndmrk Development, which co-owns retail buildings and mixed-use projects in the city’s Wynwood and Edgewater neighborhoods.
“Ten years ago, if a pasta restaurant was working well in a neighborhood, then you wouldn’t see other pasta restaurants open near it,” Karakhanian said. “Now, if people see a concept working well, they believe they can open a similar restaurant in the same neighborhood and that it will work.”
About a month ago, he had a restaurant tenant in one of his buildings close, Karakhanian said. “In two weeks, that space has been replaced with a new restaurateur,” he said. “The other party vacated, and we cut a new lease with the new tenant at substantially the same rental rate.”
Karakhanian declined to name the restaurant operators.
Lndmrk did not hit the new tenant with an extra fee for taking over the fully built-out space, Karakhanian added. “We don’t charge key money,” he said. “I think key money is a little harder for a restaurateur to swallow. The key money will come back to me over the course of the monthly rent being paid on time.”
Key money is king
Yet, a significant number of restaurant landlords don’t care if a tenant’s concept makes it or not because they know they can just lease the space to the next operator waiting in line, said F+B’s Bendersky. Property owners are happy to take a space back and charge higher rent to the next tenant, he added.
In some cases, landlords will also ask for key money, Bendersky added. Evicted tenants leave behind a fully built-out restaurant, which is attractive for new operators who want to avoid a lengthy permitting process that can take up to a year for approvals, he explained.
“The landlord can turn around and say ‘Give me $150,000, $200,000,’” Bendersky said. “That’s on top of charging the new tenant market price for rent. Landlords are tired of seeing these restaurant operators sell their businesses and leases without getting anything out of it.”
A few property owners are adding clauses to lease agreements that prohibit tenants from reassigning or subleasing a space if the restaurant fails, Bendersky noted.
But it’s mostly restaurant tenants seeking a way out that are looking for key money deals, according to other brokers. Recently, Michael Silverman with Miami Beach-based Comras Company brokered a key money deal for a restaurant at 800 East Las Olas Boulevard in Fort Lauderdale previously occupied by Cuba Libre, a Cuban cuisine chain.
“The location wasn’t working for them, so Cuba Libre hired us to find them somebody to help solve their problem,” Silverman said. “We got [American cuisine and fine wine restaurant chain] Sixty Vines. Last week, they bought out [Cuba Libre’s] lease for key money,”
He declined to say exactly how much Sixty Vines paid Cuba Libre, but the deal was in the “seven figures,” Silverman said. Four other restaurant operators also looked at the Las Olas space before Sixty Vines.
“I think there is consistent demand even though [South Florida] is an expensive place to do business,” Silverman said. “We saw a lot of people that didn’t make it in the summer, and that have closed more recently. Unfortunately, it’s really tough out there.”
FA Commercial’s Faerman said he handled two key money deals in Miami’s Brickell neighborhood last month. La Sandwicherie sandwich shop bought out a lease with six remaining years for a 1,000-square-foot space at 60 Southwest 10th Street from Sproutz, a healthy food dining spot. Sproutz moved to a 2,600-square-foot outpost on the ground floor of the Hampton Inn & Suites at 40 Southwest 12th Street after buying out the lease from Cuban restaurant Sergio’s.
“They are willing to pay key money,” Faerman said. “For small spaces between 1,000 square feet and 2,000 square feet, it is around six figures. For larger restaurants above 5,000 square feet, you are talking in the low seven figures.”
