Famous Toastery opened its first of two downtown Charlotte, North Carolina, locations about a decade ago — veering from its primary market in the suburbs.
Urban areas such as Charlotte’s downtown can be challenging environments for casual dining restaurant chains like Famous Toastery for a number of reasons. Rents are high, those areas don’t always generate traffic outside workweek hours, and dense business corridors can come with a number of space limitations, experts say.
Despite the challenges, casual dining restaurant chains can succeed in some urban markets — so long as a real estate opportunity makes sense financially and meets the brand’s requirements.
High-end chains such as Ruth’s Chris Steakhouse or Morton’s Steakhouse do very well in urban areas near hotels and convention centers, said Charles Perkins, owner of commercial real estate firm Boston Restaurant Group.
Casual dining chain restaurants entered Boston in the 1990s when the cost of opening a location was fairly inexpensive. But today, chains such as Applebee’s or Chili’s don’t typically do well in downtown markets since their menu prices are cheap and the rents and other costs in the city are expensive, said Perkins.
Casual dining restaurant chains like Chili’s and Applebee’s also provide family dining experiences, which is why they are typically located outside of the city completely, said Perkins. Meanwhile, those chains aren’t likely frequented by an office worker in Downtown Boston, he said.
However, Famous Toastery — which sells lunch,breakfast and cocktails from 7 a.m. until mid-afternoon depending on locations — has found success in Charlotte and is looking to expand into other markets, including San Antonio, Texas, and potentially downtown Washington D.C., said Mike Sebazco, the chain’s president.
“D.C. is actually one that is interesting to us,” Sebazco said. “We just need to make sure we can make the economics work.”
Finding the right urban location
Rent in urban areas is typically higher than in suburban areas, said Sebazco. So for an urban or downtown area to work, the restaurant needs to draw people seven days per week, said Sebazco.
That includes “a healthy mix of lifestyles that’s going on there,” he said, including commuters and locals who live close by. A good location needs a lot of residents or existing businesses that bring additional draws, he said.
Charlotte’s downtown draws traffic seven days per week through athletic events and concerts that bring people to the area year-round, Sebazco said.
As Famous Toastery evaluates a potential location in downtown D.C., the company needs to grasp the full dynamic of the location: Does it attract only tourists? Will it also attract workers from offices within its downtown area?
There are other cost considerations, as well. Gutting and creating space in a historic building and then adding the restaurant’s branding and materials are “expensive propositions" — especially compared to building out an end cap, said Sebazco.
And, adding to the high price of leasing a space in Boston, the cost of obtaining a liquor license in the city’s downtown can cost around $600,000, said Perkins. The cost of a liquor license is a fraction of the price in more suburban cities and towns right outside of Boston, he said.
Add a cut of revenues that go to the company, franchises in that market would need to make millions in sales just to break even, Perkins said.
The ideal space
Casual dining restaurant chains with lower menu prices are being intentional about the sites they are looking for, said Alon Lagstein, counsel at law firm Carlton Fields, a firm that works with restaurant brands.
That includes locations with access to a lot of parking, including dedicated curbside pickup spaces. Even if people are dining in the restaurant for long periods of time, giving delivery drivers convenient parking so a restaurant worker can run the food out quickly is crucial, he said.
“You’re not going to find those parking requirements and those space requirements so often in the dense urban areas,” said Lagstein.
Chain restaurants also often get excited about finding a location at a corner where it’s easy for a car to turn into their drive-thru or if there’s multiple points of ingress from the street, said Lagstein.
And they are looking for up to 10,000 square feet, including a patio, said Lagstein. The space needs to fulfill a large number of utility and fire safety requirements, he said. And the space needs to accommodate architectural requirements that allow the chain to build out the restaurant to reflect their brand, he added.
Even if such a space existed in a busy city such as Los Angeles or Boston, there’s no guarantee that the casual chain restaurant would succeed.
A large number of employees in the region are also still working remotely and don’t want to drive into Downtown Boston and pay for parking to go to a casual chain restaurant when they can go to one in the suburbs, said Perkins.
Finding deals
There are opportunities available for some casual dining restaurant brands to succeed in the right urban area.
The Century City neighborhood of Los Angeles, for instance, is highly concentrated with a large number of office workers, as well as a shopping mall, some expensive condos and newer buildings that are highly amenitized, said Lagstein. This market is vibrant and able to support the many restaurants located there, he said.
“I think brands are still comfortable betting on a place like Century City,” said Lagstein.
But, newer, office-oriented areas with the atmosphere of Century City are fairly rare in the U.S. And some low-cost casual dining restaurant brands may not be the right fit for the area, Lagstein said.
Century City’s mall hosts fast food chains like Chick-fil-A; fast casual restaurants such as Cava and Chipotle; ice cream and dessert eateries; coffee shops; and more expensive dining restaurants. An Olive Garden is located a few miles away.
“It’s a higher price-point place so you’re not really going to see Applebee’s,” said Lagstein. “You might see some of Applebee’s competitors that cater to a price point that is a notch or two above.”
Despite the challenges, deals in urban locations are out there.
Famous Toastery’s initial downtown Charlotte location was attractive because it was built in a second-generation space with an existing kitchen, required low construction costs, and had a working HVAC system, said Sebazco. Second-generation restaurant spaces can help chains lower build-out costs when moving into urban areas. However, the company also keeps in mind that there’s a reason the space is available, he said.
Since the start of the COVID-19 pandemic, landlords have provided more reasonable real estate contracts and are looking for long-term plans with their tenants versus 3% escalations like they offered in the past, he said.
The rents have grown since the pandemic in some markets, like San Antonio, Texas, where Famous Toastery is working to add locations. They are currently in lease negotiations for a space in the city, Sebazco said.
Overall, the cost of renting a space in many suburban areas has increased, but it’s less than it is in an urban area. It’s often more convenient for a potential customer to get to an urban market than a suburban one, as well, he said.
“It’s a challenging environment. We’re all looking for the same thing right now, and that is a deal,” said Sebazco. “There’s really great looking opportunities out there that we are absolutely priced out of.”
