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Thinking of starting a restaurant in Bend, Oregon? Be sure to know your FF&Es and SDCs…

By Howard Friedman, CCIM

The Firehall buildingThe Bend restaurant scene is an ever-evolving and ever-changing animal. Being one of the toughest businesses to run and one of the highest turnover industries in the nation, Bend is also no stranger to restaurant ownership changes.

Of the almost 60 food and beverage businesses in the downtown core, there are currently a number of vacant or ‘quietly for sale’ establishments available. But the good news is the apparent interest and impending occupancy of several of these, with some promising new concepts to add to the diverse selection of dining choices that we currently have. When the El Jimador space went dark recently at the corner of Wall and Franklin, there were several offers on the space, even before it officially hit the market for lease. Look for a new concept tenant to open after the first of the year with a major remodel in the works. The Firehall has also been heating up with several prospective new operators vying for the space formerly occupied by Staccato and Bourbon Street. The original Astro Lounge space is also for lease, but unfortunately all the bar and restaurant equipment has been stripped out, which will make it more difficult and costly for a new proprietor to fill the space. And finally, The Blacksmith is on the market for sale, and has garnered several offers of late. And as mentioned, there are a handful of other restaurant businesses for sale, but not for public knowledge.

So what must you consider before you look at occupying a restaurant space? Besides the obvious requirement of knowing the restaurant business, there are several components that make the decision a complicated one. First of all, is the business for sale or is the space just for lease? If there is an existing business that is profitable, you may be paying for goodwill (aka ‘blue sky’), furniture fixtures and equipment (aka FF&E), and the inventory.

If the business is not profitable, the goodwill portion will most likely not be part of the equation, and it will be more of an ‘asset sale’, valuing only the FF&E and the inventory. If the business is closed, like the Firehall location, there will be no business sale component, just a negotiated lease from the landlord, and most likely a sale of the FF&E, or a possible lease of that equipment. No inventory will be included. I have seen FF&E sell for about five to ten cents on the dollar of the original build-out. For example, two of downtown’s better restaurants had initial outfittings that cost $700,000-$900,000 and recently sold for $45,000-$50,000.

Lastly, if a space has never been a restaurant in the past, the landlord or tenant may incur some hefty SDCs (System Development Charges) of $10,000-$50,000 or more just to convert the space to a restaurant use. This usually precludes most folks from setting up shop in a previously non-conforming space.

Next month I will report on some of our new favorite restaurants around town, so stay tuned. For starters, try the new Hideaway Tavern in the former Grover’s Pub and Pizza location at 939 N.E. 2nd Street. You will be pleasantly surprised!

Howard Friedman, CCIM is a partner and principal broker with Compass Commercial Real Estate Services.  He joined Compass Commercial in April of 1998 after 25 years in the restaurant industry. He uses his business background and knowledge of the region to assist clients in leasing and sales of retail, commercial and industrial properties, including land sales, investment properties and owner/user opportunities.