A Whole New Mall Game

Restaurants — even the nonchain variety — have become prized tennants for many shopping center operators.

As the retail real estate industry transforms in the wake of the recession, mall and shopping center owners are building relationships with the kinds of tenants they might have ignored 5 or 10 years ago.

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Restaurant operators only gained acceptance as mall tenants in early 2000s. Their parking needs, long hours of operation and heavy cleaning requirements were previously seen as a burden. Gradually, however, retail landlords began doing business with large national chains like the Cheesecake Factory and P.F. Chang’s China Bistro and enjoyed great success in the process.

Today, many landlords are taking the next step by targeting smaller, independent restaurateurs, many of whom have no experience operating in a shopping center environment. Why now?

One explanation is that restaurants have bounced back from the recession more quickly than retail operators and are currently among the best drivers of traffic for retail properties.

Another reason is that independent restaurants bring with them a sense of uniqueness — an element that traditional malls and shopping centers are often criticized for lacking, says Matthew Harding, president and c.o.o. of Levin Management Corp. “Restaurants create life and activity in a shopping center and a good independent restaurant can really develop a loyal following,”he adds.

On the flip side, independent concepts that operate only one or two restaurant locations can benefit from the added exposure and customer traffic a shopping center environment provides, as well as from the marketing savvy of an experienced landlord, notes Robert Catania, owner and president of Wicked Restaurant Inc., operator of Wicked Fire Kissed Pizza. Catania has one restaurant at South Cape Village in Mashpee, MA, and just opened at another mall in Dedham, MA.

Landlords often make independent restaurateurs’ lives easier by guiding them through the building and operating permit procurement processes and by helping with marketing. For instance, obtaining a liquor license can often be challenging, particularly if an eatery is in a setting that has a large number of restaurant concepts. There might be a limit on how many establishments can get permits.

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“Sometimes you have to learn those things the hard way and it takes longer,” Catania says. “So it’s kind of like having professional consultants built in.”

Mall and shopping center owners with large portfolios also tend to be media-savvy. For instance, Levin Management recently brought a new Indian restaurant called Thulasi to its Centre Plaza property ouside Philadelphia. Before opening, the owners aimed their marketing outreach primarily at Indian customers. Levin suggested they broaden the campaign to non-Indians to boost traffic. Levin also issued a press release announcing the restaurant’s opening to local media outlets, hoping to attract both new customers and restaurant reviews. It followed up with a special advisory for food editors and restaurant reviewers.

“The advantage of dealing with a professional company is that you have a track record there of people who know how to market their property, which concepts fit in and which don’t,” says Catania. “They spend a long time to get the right balance.”

Small restaurateurs sometimes also need guidance on maintaining HVAC and plumbing systems or removing trash properly because they might not be used to sharing trash facilities with other tenants, notes Harding. The ins and outs of everyday operations are usually spelled out in the lease before the restaurant opens.

To subsidize high start-up costs, some landlords offer free rent during the restaurant’s first year. In exchange, the restaurant operator might be asked to sign a slightly longer lease than a traditional retailer so the landlord can recoup the initial investment.

Malls are not for every operator. “You’ve got to have your design worked out, you’ve got to have your finances figured out and it’s important to have a very good, very strong business plan when you go into a location like that,” Catania observes. “You’ve got to make sure you can do the volume that’s necessary to afford the rent.”

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