Monthly Archives: January 2017

Foodservice and Restaurant Merchandising 101

Visual food merchandising is one of the hottest trends in the restaurant, foodservice and hospitality industry today, which is the fine art of presenting your products in a way that gets your customers to buy, as well as bringing your products to life with eye-catching displays of freshness, color, quality and abundance.

A great food merchandising program paired with cross-merchandising strategies will help to increase your restaurant or foodservice operations’ sales significantly, as well as boost customer satisfaction and return business.

The benefits of eye-catching food merchandising displays and cross- merchandising techniques are immediate. Sales will increase between 15 percent to 300 percent if you have done a proper job with your merchandising program Your staff’s morale will also be raised from the improved surroundings and satisfied customers.

Running a foodservice operation takes much more than just displaying the usual information like the “daily special”. As an operator, you must consider what will lure your customers into your operation in the first place. Here are some basic merchandising rules and tips to follow:

1. Make it look appetizing

You should build your food displays so that customers can see them from all angles of your facility. Use nothing but the freshest ingredients and colorful food items to catch their attention. Display your food items using uniquely shaped plates and dishes with different textures. Use terra cotta and other environmentally conscious colors, and incorporate natural wood and bamboo to create a more modern, clean and sleek image.

For example, the addition of a simple, thick, wooden board placed inside a standard glass display unit for sandwiches emphasizes to customers that the sandwiches have just been freshly made. Without the board, the sandwiches look start and naked, and allows customers to wonder how long they have been sitting there, since a glass and steel display unit tends to evoke a sense of coldness and emptiness. The cutting board helps to add warmth and life to the display unit.

2. Place products on a slant and use color

Food is always displayed better when placed on a slant and not lying flat. Show your customers your products! Tilted European-style wooden racks are a great merchandising tool to display breads, pies, pastries, and other products, creating an inviting display to tempt your customers to buy.

Color is one of the most important factors when dealing with food displays. Many food products tend to come from the brown and beige palettes, so is necessary to brighten up your operation with greens, reds, oranges and yellows, to also create a fresh and healthy look. Consider looking at what items you might already have on hand in your kitchen, pantry and stockrooms that might add mouthwatering color and substance to your display.

3. Use cross-merchandising techniques to use higher sales

For cafeterias and market-style operations, cross-merchandising is an excellent opportunity to upsell by placing the right foods together. Soups, sandwiches and potato chips should be placed in the same area, while coffee and tea should be served right next to desserts. Side orders and salads could be split. For example, small containers of salad could be packaged and placed on ice next to the grill, as well as stationed next to the sandwiches. Also try different varieties of cream cheese next to bagels, or fresh fruit and whipped cream next to cake and ice cream. Coffee and tea is a great partner to bakery items. Sales of beautifully packaged coffee will soar when placed next to bakery items.

4. Use the cash-wrap area

The cash-wrap area is prime real estate for merchandising. Proper merchandising of additional retail products at the cash-wrap area will help you increase average checks. Use your cash-wrap area for last minute sales of coffee, soda, desserts, candies and chocolate bars, and create an irresistible display of goods that customers cannot refuse.

5. Proper signage points the way to increased revenues

Proper signage can help you tell customers what you need to tell them when you are unable to offer them personal attention. It is very important to be clean, concise and to the point when designing the signage for your operation. Make it as easy as possible for customers to purchase food items by providing proper signage that inform your customers about your products so they will buy them. Signage can be displayed in all shapes and sizes, and should be used accordingly. Use branded mini cards to label and price your products, and write short descriptions of the item detailing the ingredients you used or your cooking method. If you insist on handwriting your signs, be sure to make them legible and graphically appealing.

Best Sugar Cookie Recipe?

There is nothing like a great sugar cookie recipe. Don’t buy the roll of Pillsbury Dough, you can make a superb cookie that will remind you of the days when Grandma made them.

Grandma used to sit by the fire and drink her tea and Grandpa used to sip his coffee made from his French Press, before it was trendy. I loved seeing them sit there enjoying the day. When we walked in the house there were smells coming from the kitchen you just couldn’t imagine. The sweet smell of warm sugar cookies invaded your senses. You knew today was going to be a treat.

It was a tradition that we enjoyed every year. The kitchen was filled with flour storms and the counters were sticky from Buttercream frosting. We had tin cookie cutters spread all over the table. I liked the boot best, my sister liked the angel.

Grandma had a special way with those cookies and she handed down the recipe to me. I was to teach my kids how to make these wonderful holiday sweets. It wouldn’t be Christmas time without this recipe of Yummy cookies.

I am publishing it because I want you to enjoy the best sugar cookie recipe ever.

Grandma’s Favorite Sugar Cookie

1 cup white sugar

1 cup powdered sugar

1 cup butter

2 eggs beaten

1 tsp cream of tarter

1 tsp baking soda

1 tsp vanilla

4 cups flour

½ cup corn oil

Cream the sugars and butter together. Mix the beaten eggs, vanilla and corn oil, in. Add the dry ingredients .Mix all the ingredients well and chill overnight.

Bake at 375 F for 8-10 minutes….DO NOT OVERCOOK.

We used to make the funniest colors to decorate the cookies, most of them looked inedible. They tasted heavenly, though. We figured if we made them look gross enough, the adults would leave them alone. We were wrong. Everyone knew they were Grandma’s famous sugar cookies from her handed down recipe book. This page was splattered with all sorts of colors. I have that book now. I love making these cookies with my kids.

Grandma’s Favorite Frosting (don’t forget the food coloring)

2 cups of powdered sugar

½ cup butter melted

1 ½ T Milk

1 tsp vanilla

Cream sugar, butter and vanilla. Add a small amount of milk (1 to 2 tablespoons). Beat until fluffy. If frosting is too sweet add a little more milk.

Try it this season. Enjoy your family and brew some wonderful tea or coffee and relax. Take the time to make memories with your family or neighbors or friends.

Pregnancy – Conceiving Tips – Five Foods That Can Kill Your Fertility

Eating the right foods is essential to fertility, but these won’t do any good if you keep on eating foods that damage your chances of pregnancy. Conceiving is a delicate process that involves environmental cues, hormonal balance, and physiology. It’s so easy for the wrong foods to disrupt these events and prevent the union of an egg and a sperm. By avoiding these five foods, you can boost the fertility of yourself and your partner and increase your own chances of a healthy pregnancy too.

Sugar

Sugar and refined carbohydrates are a big no-no for fertility, especially if you are suffering from polycystic ovarian syndrome (PCOS). According to the Nurses’ Health Study, the largest study on nutrition and female fertility, women who eat more refined sugar are more likely to suffer from fertility problems. Our body’s glucose levels rise whenever we eat refined carbohydrates or sugar. As the glucose levels rise, the body produces the hormone insulin so the cells can use the glucose for energy. Foods with a low glycemic index allow the body to go through the glucose slowly, but refined sugar (foods with high glycemic index) causes the blood glucose levels to rise too quickly. This makes your insulin levels stretch out too thinly and adds stress to your body. If you keep a regular diet of refined sugar, your body will eventually become insulin resistant. This means that your cells will no longer respond to the insulin produced by your body, skewing the hormonal production required for timely ovulation and interfering with your chances of conceiving. Research shows that up to 70% of women with PCOS are insulin-resistant.

Trans-Fats

Chips and fries may be crispy and satisfying snacks, but they’re also rich in an industrially created fat called trans-fat (trans-fatty acids or partially hydrogenated oils). Trans-fats are found in packaged goods, fried fast food, microwaved popcorn, or vegetable shortening in order to extend their shelf-life. Any commercial good that has “partially-hydrogenated vegetable oil” or “shortening” in the ingredients label probably has trans-fats. The Nurses’ Health Study found out that women who ate more trans-fats were suffered from more ovulatory problems than women who did not. In fact, just a 2% increase in trans-fat consumption makes a woman 73% more likely to suffer from ovulation-related infertility. Trans-fats affect fertility by making the body more insulin-resistant and causing inflammation. In men, high trans-fat levels make the membrane of the sperm cell less flexible, decreasing its ability to successfully penetrate an egg cell.

Soy

Reports show that too much soy protein can decrease male and female fertility. A study published in Human Reproduction looked at the sperm samples and soy intake of 99 men with unexplained infertility. Researchers discovered that over half of the men had poor sperm motility and low sperm count. The researchers also observed that the men with higher sperm count and better sperm quality had lower soy intake.

Another study published in the American Journal of Clinical Nutrition shows that high soy consumption can decrease the levels of the follicle-stimulating hormone (FSH), luteinizing hormone (LH), and increase menstrual cycle length.

Caffeine

Like most hardworking people, you probably like starting your day with a strong cup of coffee. But you might want to cut back on this and other caffeine-laden drinks. According to the Nurses’ Health Study, women who consume over 400mg of caffeine a day (one eight-ounce cup of coffee has 100-300 mg caffeine) are more likely to be infertile. Caffeine causes the fallopian tubes to tense up and slow down the movement of a fertilized egg towards the uterus. Once the egg finally reaches the uterus, the endometrium may not be healthy enough to receive it.

You can keep your morning cup of coffee and your fertility too; as long as you consume less than 300mg of caffeine a day, you should be fine. Do take note that soda is also laden with caffeine; the Nurses’ Health Study notes that women are 50% more likely to experience ovulation problems if they drink two or more cans of soda a day.

Aspartame and artificial sweeteners

Here’s another reason to avoid soda, especially diet soda: they contain an artificial sweetener called aspartame that affects fertility. According to Pediatrician and Professor Dr Louis Elsas, consuming aspartame before conceiving increases the likelihood of neurological problems in the child. When aspartame enters the intestines, it gets broken down into a chemical called phenylalanine and becomes concentrated in the placenta, causing developmental problems in the growing baby. Dr. Maledon Price of the University of Washington also notes that aspartame destroys the neurons that regulate the release of hormones, causing low levels of the FSH, LH, and gonadotropins. Aspartame is also known to impact sperm production and egg quality.

A Complete Guide For Restaurant Real Estate Investments

Restaurants are a favorite commercial property for many investors because:

  1. Tenants often sign a very long term, e.g. 20 years absolute triple net (NNN) leases. This means, besides the rent, tenants also pay for property taxes, insurance and all maintenance expenses. The only thing the investor has to pay is the mortgage, which in turn offers very predictable cash flow. There are either no or few landlord responsibilities because the tenant is responsible for maintenance. This allows the investor more time to do important thing in life, e.g. retire. All you do is take the rent check to the bank. This is one of the key benefits in investing in a restaurant or single-tenant property.
  2. Whether rich or poor, people need to eat. Americans are eating out more often as they are too busy to cook and cleanup the pots & pans afterwards which often is the worst part! According to the National Restaurant Association, the nation’s restaurant industry currently involves 937,000 restaurants and is expected to reach $537 billion in sales in 2007, compared to just $322 billion in 1997 and $200 billion in 1987 (in current dollars). In 2006, for every dollar Americans spend on foods, 48 cents were spent in restaurants. As long as there is civilization on earth, there will be restaurants and the investor will feel comfortable that the property is always in high demand.
  3. You know your tenants will take very good care of your property because it’s in their best interest to do so. Few customers, if any, want to go to a restaurant that has a filthy bathroom and/or trash in the parking lot.

However, restaurants are not created equal, from an investment viewpoint.

Franchised versus Independent

One often hears that 9 out of 10 new restaurants will fail in the first year; however, this is just an urban myth as there are no conclusive studies on this. There is only a study by Associate Professor of Hospitality, Dr. H.G. Parsa of Ohio State University who tracked new restaurants located in the city Columbus, Ohio during the period from 1996 to 1999 (Note: you should not draw the conclusion that the results are the same everywhere else in the US or during any other time periods.) Dr. Parsa observed that seafood restaurants were the safest ventures and that Mexican restaurants experience the highest rate of failure in Columbus, OH. His study also found 26% of new restaurants closed in the first year in Columbus, OH during 1996 to 1999. Besides economic failure, the reasons for restaurants closing include divorce, poor health, and unwillingness to commit immense time toward operation of the business. Based on this study, it may be safe to predict that the longer the restaurant has been in business, the more likely it will be operating the following year so that the landlord will continue to receive the rent.

For franchised restaurants, a franchisee has to have a certain minimal amount of non-borrowed cash/capital, e.g. $300,000 for McDonald’s, to qualify. The franchisee has to pay a one-time franchisee fee about $30,000 to $50,000. In addition, the franchisee has contribute royalty and advertising fees equal to about 4% and 3% of sales revenue, respectively. In turn, the franchisee receives training on how to set up and operate a proven and successful business without worrying about the marketing part. As a result, a franchised restaurant gets customers as soon as the open sign is put up. Should the franchisee fail to run the business at the location, the franchise may replace the current franchisee with a new one. The king of franchised hamburger restaurants is the fast-food chain McDonald’s with over 32000 locations in 118 countries (about 14,000 in the US) as of 2010. It has $34.2B in sales in 2011 with an average of $2.4M in revenue per US location. McDonald’s currently captures over 50% market share of the $64 billion US hamburger restaurant market. Its sales are up 26% in the last 5 years. Distant behind is Wendy’s (average sales of $1.5M) with $8.5B in sales and 5904 stores. Burger King ranks third (average sales of $1.2M) with $8.4B in sale, 7264 stores and 13% of the hamburger restaurant market share (among all restaurant chains, Subway is ranked number two with $11.4B in sales, 23,850 stores, and Starbucks number 3 with $9.8B in sales and 11,158 stores). McDonald’s success apparently is not the result of how delicious its Big Mac tastes but something else more complex. Per a survey of 28,000 online subscribers of Consumer Report magazine, McDonald’s hamburgers rank last among 18 national and regional fast food chains. It received a score of 5.6 on a scale of 1 to 10 with 10 being the best, behind Jack In the Box (6.3), Burger King (6.3), Wendy’s (6.6), Sonic Drive In (6.6), Carl’s Jr (6.9), Back Yard Burgers (7.6), Five Guys Burgers (7.9), and In-N-Out Burgers (7.9).

Fast-food chains tend to detect new trends faster. For example, they are open as early as 5AM as Americans are increasingly buying their breakfasts earlier. They are also selling more cafe; latte; fruit smoothies to compete with Starbucks and Jumba Juice. You also see more salads on the menu. This gives customers more reasons to stop by at fast-food restaurants and make them more appealing to different customers.

With independent restaurants, it often takes a while to for customers to come around and try the food. These establishments are especially tough in the first 12 months of opening, especially with owners of minimal or no proven track record. So in general, “mom and pop” restaurants are risky investment due to initial weak revenue. If you choose to invest in a non-brand name restaurant, make sure the return is proportional to the risks that you will be taking.

Sometimes it is not easy for you to tell if a restaurant is a brand name or non-brand name. Some restaurant chains only operate, or are popular in a certain region. For example, WhatABurger restaurant chain with over 700 locations in 10 states is a very popular fast-food restaurant chain in Texas and Georgia. However, it is still unknown on the West Coast as of 2012. Brand name chains tend to have a website listing all the locations plus other information. So if you can find a restaurant website from Google or Yahoo you can quickly discern if an unfamiliar name is a brand name or not. You can also obtain basic consumer information about almost any chain restaurants in the US on Wikipedia.

The Ten Fastest-Growing Chains in 2011 with Sales Over $200 Million

According to Technomic, the following is the 10 fastest growing restaurant chains in terms of revenue change from 2010 to 2011:

  1. Five Guys Burgers and Fries with $921M in sales and 32.8% change.
  2. Chipotle Mexican Grill with $2.261B in sales and 23.4% change.
  3. Jimmy John’s Gourmet Sandwich Shop with $895M in sales and 21.8% change.
  4. Yard House with $262M in sales and 21.5% change.
  5. Firehouse Subs with $285M in sales and 21.1% change.
  6. BJ’s Restaurant & Brewhouse with $621M in sales and 20.9% change.
  7. Buffalo Wild Wings Grill & Bar with $2.045B in sales and 20.1% change.
  8. Raising Cane’s Chicken Fingers with $206M in sales and 18.2% change.
  9. Noodles & Company with $300M in sales and 14.9% change from.
  10. Wingstop with $382M in sales and 22.1% change.

Lease & Rent Guaranty

The tenants often sign a long term absolute triple net (NNN) lease. This means, besides the base rent, they also pay for all operating expenses: property taxes, insurance and maintenance expenses. For investors, the risk of maintenance expenses uncertainty is eliminated and their cash flow is predictable. The tenants may also guarantee the rent with their own or corporate assets. Therefore, in case they have to close down the business, they will continue paying rent for the life of the lease. Below are a few things that you need to know about the lease guaranty:

  1. In general, the stronger the guaranty the lower the return of your investment. The guaranty by McDonald’s Corporation with a strong “A” S&P corporate rating of a public company is much better than a small corporation owned by a franchisee with a few restaurants. Consequently, a restaurant with a McDonald’s corporate lease normally offers low 4.5-5% cap (return of investment in the 1st year of ownership) while McDonald’s with a franchisee guaranty (over 75% of McDonalds restaurants are owned by franchisees) may offer 5-6% cap. So figure out the amount of risks you are willing to take as you won’t get both low risks and high returns in an investment.
  2. Sometimes a multi-location franchise will form a parent company to own all the restaurants. Each restaurant in turn is owned by a single-entity Limited Liabilities Company (LLC) to shield the parent company from liabilities. So the rent guaranty by the single-entity LLC does not mean much since it does not have much assets.
  3. A good, long guaranty does not make a lemon a good car. Similarly, a strong guaranty does not make a lousy restaurant a good investment. It only means the tenant will make every effort to pay you the rent. So don’t judge a property primarily on the guaranty.
  4. The guaranty is good until the corporation that guarantees it declares bankruptcy. At that time, the corporation reorganizes its operations by closing locations with low revenue and keeping the good locations, (i.e. ones with strong sales). So it’s more critical for you to choose a property at a good location. If it happens to have a weak guaranty, (e.g. from a small, private company), you will get double benefits: on time rent payment and high return.
  5. If you happen to invest in a “mom & pop” restaurant, make sure all the principals, e.g. both mom and pop, guarantee the lease with their assets. The guaranty should be reviewed by an attorney to make sure you are well protected.

Location, Location, Location

A lousy restaurant may do well at a good location while those with a good menu may fail at a bad location. A good location will generate strong revenue for the operator and is primarily important to you as an investor. It should have these characteristics:

  1. High traffic volume: this will draw more customers to the restaurant and as a result high revenue. So a restaurant at the entrance to a regional mall or Disney World, a major shopping mall, or colleges is always desirable.
  2. Good visibility & signage: high traffic volume must be accompanied by good visibility from the street. This will minimize advertising expenses and is a constant reminder for diners to come in.
  3. Ease of ingress and egress: a restaurant located on a one-way service road running parallel to a freeway will get a lot of traffic and has great visibility but is not at a great location. It’s hard for potential customers to get back if they miss the entrance. In addition, it’s not possible to make a left turn. On the other hand, the restaurant just off freeway exit is more convenient for customers.
  4. Excellent demographics: a restaurant should do well in an area with a large, growing population and high incomes as it has more people with money to spend. Its business should generate more and more income to pay for increasing higher rents.
  5. Lots of parking spaces: most chained restaurants have their own parking lot to accommodate customers at peak hours. If customer cannot find a parking space within a few minutes, there is a good chance they will skip it and/or won’t come back as often. A typical fast food restaurant will need about 10 to 20 parking spaces per 1000 square feet of space. Fast food restaurants, e.g. McDonald’s will need more parking spaces than sit down restaurants, e.g. Olive Garden.
  6. High sales revenue: the annual gross revenue alone does not tell you much since larger–in term of square footage–restaurant tends to have higher revenue. So the rent to revenue ratio is a better gauge of success. Please refer to rent to revenue ratio in the due diligence section for further discussion.
  7. High barriers to entry: this simply means that it’s not easy to replicate this location nearby for various reasons: the area simply does not have any more developable land, or the master plan does not allow any more construction of commercial properties, or it’s more expensive to build a similar property due to high cost of land and construction materials. For these reasons, the tenant is likely to renew the lease if the business is profitable.

Financing Considerations

In general, the interest rate is a bit higher than average for restaurants due to the fact that they are single-tenant properties. To the lenders, there is a perceived risk because if the restaurant is closed down, you could potentially lose 100% of your income from that restaurant. Lenders also prefer national brand name restaurants. In addition, some lenders will not loan to out-of-state investors especially if the restaurants are located in smaller cities. So it may be a good idea for you to invest in a franchised restaurant in major metro areas, e.g. Atlanta, Dallas. In 2009 it’s quite a challenge to get financing for sit-down restaurant acquisitions, especially for mom and pop and regional restaurants due to the tight credit market. However, things seem to have improved a bit in 2010. If you want to get the best rate and terms for the loan, you should stick to national franchised restaurants in major metros.

When the cap rate is higher than the interest rate of the loan, e.g. cap rate is 7.5% while interest rate is 6.5%, then you should consider borrowing as much as possible. You will get 7.5% return on your down payment plus 1% return for the money you borrow. Hence your total return (cash on cash) will be higher than the cap rate. Additionally, since the inflation in the near future is expected to be higher due to rising costs of fuel, the money which you borrow to finance your purchase will be worth less. So it’s even more beneficial to maximize leverage now.

Due Diligence Investigation

You may want to consider these factors before deciding to go forward with the purchase:

  1. Tenant’s financial information: The restaurant business is labor intensive. The average employee generates only about $55,000 in revenue annually. The cost of goods, e.g. foods and supplies should be around 30-35% of revenue; labor and operating expenses 45-50%; rent about 7-12%. So do review the profits and loss (P&L) statements, if available, with your accountant. In the P&L statement, you may see the acronym EBITDAR. It stands for Earnings Before Income Taxes, Depreciation (of equipment), Amortization (of capital improvement), and Rent. If you don’t see royalty fees in P&L of a franchised restaurant or advertising expenses in the P&L of an independent restaurant, you may want to understand the reason why. Of course, we will want to make sure that the restaurant is profitable after paying the rent. Ideally, you would like to see net profits equal to 10-20% of the gross revenue. In the last few years the economy has taken a beating. As a result, restaurants have experienced a decrease in gross revenue of around 3-4%. This seems to have impacted most, if not all, restaurants everywhere. In addition, it may take a new restaurant several years to reach potential revenue target. So don’t expect new locations to be profitable right away even for chained restaurants.
  2. Tenant’s credit history: if the tenant is a private corporation, you may be able to obtain the tenant’s credit history from Dun & Bradstreet (D&B). D&B provides Paydex score, the business equivalent of FICO, i.e. personal credit history score. This score ranges from 1 to 100, with higher scores indicating better payment performance. A Paydex score of 75 is equivalent to FICO score of 700. So if your tenant has a Paydex score of 80, you are likely to receive the rent checks promptly.
  3. Rent to revenue ratio: this is the ratio of base rent over the annual gross sales of the store. It is a quick way to determine if the restaurant is profitable, i.e. the lower the ratio, the better the location. As a rule of thumb you will want to keep this ratio less than 10% which indicates that the location has strong revenue. If the ratio is less than 7%, the operator will very likely make a lot of money after paying the rent. The rent guaranty is probably not important in this case. However, the rent to revenue ratio is not a precise way to determine if the tenant is making a profit or not. It does not take into account the property taxes expense as part of the rent. Property taxes–computed as a percentage of assessed value–vary from states to states. For example, in California it’s about 1.25% of the assessed value, 3% in Texas, and as high as 10% in Illinois. And so a restaurant with rent to income ratio of 8% could be profitable in one state and yet be losing money in another.
  4. Parking spaces: restaurants tend to need a higher number of parking spaces because most diners tend to stop by within a small time window. You will need at least 8 parking spaces per 1000 Square Feet (SF) of restaurant space. Fast food restaurants may need about 15 to 18 spaces per 1000 SF.
  5. Termination Clause: some of the long term leases give the tenant an option to terminate the lease should there be a fire destroying a certain percentage of the property. Of course, this is not desirable to you if that percentage is too low, e.g. 10%. So make sure you read the lease. You also want to make sure the insurance policy also covers rental income loss for 12-24 months in case the property is damaged by fire or natural disasters.
  6. Price per SF: you should pay about $200 to $500 per SF. In California you have to pay a premium, e.g. $1000 per SF for Starbucks restaurants which are normally sold at very high price per SF. If you pay more than $500 per SF for the restaurant, make sure you have justification for doing so.
  7. Rent per SF: ideally you should invest in a property in which the rent per SF is low, e.g. $2 to $3 per SF per month. This gives you room to raise the rent in the future. Besides, the low rent ensures the tenant’s business is profitable, so he will be around to keep paying the rent. Starbucks tend to pay a premium rent $2 to 4 per SF monthly since they are often located at a premium location with lots of traffic and high visibility. If you plan to invest in a restaurant in which the tenant pays more than $4 per SF monthly, make sure you could justify your decision because it’s hard to make a profit in the restaurant business when the tenant is paying higher rent. Some restaurants may have a percentage clause. This means besides the minimum base rent, the operator also pays you a percentage of his revenue when it reaches a certain threshold.
  8. Rent increase: A restaurant landlord will normally receive either a 2% annual rent increase or a 10% increase every 5 years. As an investor you should prefer 2% annual rent increase because 5 years is a long time to wait for a raise. You will also receive more rent with 2% annual increase than 10% increase every 5 years. Besides, as the rent increases every year so does the value of your investment. The value of restaurant is often based on the rent it generates. If the rent is increased while the market cap remains the same, your investment will appreciate in value. So there is no key advantage for investing in a restaurant in a certain area, e.g. California. It’s more important to choose a restaurant at a great location.
  9. Lease term: in general investors favor long term, e.g. 20 year lease so they don’t have to worry about finding new tenants. During a period with low inflation, e.g. 1% to 2%, this is fine. However, when the inflation is high, e.g. 4%, this means you will technically get less rent if the rent increase is only 2%. So don’t rule out properties with a few years left of the lease as there may be strong upside potential. When the lease expires without options, the tenant may have to pay much higher market rent.
  10. Risks versus Investment Returns: as an investor, you like properties that offer very high return, e.g. 8% to 9% cap rate. And so you may be attracted to a brand new franchised restaurant offered for sale by a developer. In this case, the developer builds the restaurants completely with Furniture, Fixtures and Equipment (FFEs) for the franchisee based on the franchise specifications. The franchisee signs a 20 years absolute NNN lease paying very generous rent per SF, e.g. $4 to $5 per SF monthly. The new franchisee is willing to do so because he does not need to come up with any cash to open a business. Investors are excited about the high return; however, this may be a very risky investment. The one who is guaranteed to make money is the developer. The franchisee may not be willing to hold on during tough times as he does not have any equity in the property. Should the franchisee’s business fails, you may not be able to find a tenant willing to pay such high rent, and you may end up with a vacant restaurant.
  11. Track records of the operator: the restaurant being run by an operator with 1 or 2 recently-open restaurants will probably be a riskier investment. On the other hand, an operator with 20 years in the business and 30 locations may be more likely to be around next year to pay you the rent.
  12. Trade fixtures: some restaurants are sold with trade fixtures so make sure you document in writing what is included in the sale.
  13. Fast-food versus Sit-down: while fast-food restaurants, e.g. McDonalds do well during the downturn, sit-down family restaurants tend to be more sensitive to the recession due to higher prices and high expenses. These restaurants may experience double-digit drop in year-to-year revenue. As a result, many sit-down restaurants were shut down during the recession. If you consider investing in a sit-down restaurant, you should choose one in an area with high income and large population.

Sale & Lease Back

Sometimes the restaurant operator may sell the real estate part and then lease back the property for a long time, e.g. 20 years. A typical investor would wonder if the operator is in financial trouble so that he has to sell the property to pay for his debts. It may or may not be the case; however, this is a quick and easy way for the restaurant operator to get cash out of the equities for good reason: business expansion. Of course, the operator could refinance the property with cash out but that may not be the best option because:

  1. He cannot maximize the cash out as lenders often lend only 65% of the property value in a refinance situation.
  2. The loan will show as long term debt in the balance sheet which is often not viewed in a positive light.
  3. The interest rates may not be as favorable if the restaurant operator does not have a strong balance sheet.
  4. He may not be able to find any lenders due to the tight credit market.

You will often see 2 different cash out strategies when you look at the rent paid by the restaurant operator:

  1. Conservative market rent: the operator wants to make sure he pays a low rent so his restaurant business has a good chance of being profitable. He also offers conservative cap rate to investors, e.g. 7% cap. As a result, his cash out amount is small to moderate. This may be a low risk investment for an investor because the tenant is more likely to be able to afford the rent.
  2. Significantly higher than market rent: the operator wants to maximize his cash out by pricing the property much higher than its market value, e.g. $2M for a $1M property. Investors are sometimes offered high cap rate, e.g. 10%. The operator may pay $5 of rent per square foot in an area where the rent for comparable properties is $3 per square foot. As a result, the restaurant business at this location may suffer a loss due to higher rents. However, the operator gets as much money as possible. This property could be very risky for you. If the tenant’s business does not make it and he declares bankruptcy, you will have to offer lower rent to another tenant to lease your building.

Ground Lease

Occasionally you see a restaurant on ground lease for sale. The term ground lease may be confusing as it could mean

  1. You buy the building and lease the land owned by another investor on a long-term, e.g. 50 years, ground lease.
  2. You buy the land in which the tenant owns the building. This is the most likely scenario. The tenant builds the restaurant with its own money and then typically signs a 20 years NNN lease to lease the lot. If the tenant does not renew the lease then the building is reverted to the landowner. The cap rate is often 1% lower, e.g. 6 to 7.25 percent, compared to restaurants in which you buy both land and building.

Since the tenant has to invest a substantial amount of money (whether its own or borrowed funds) for the construction of the building, it has to be double sure that this is the right location for its business. In addition, should the tenant fail to make the rent payment or fail to renew the lease, the building with substantial value will revert to you as the landowner. So the tenant will lose a lot more, both business and building, if it does not fulfill its obligation. And thus it thinks twice about not sending in the rent checks. In that sense, this is a bit safer investment than a restaurant which you own both the land and improvements. Besides the lower cap rate, the major drawbacks for ground lease are

  1. There are no tax write-offs as the IRS does not allow you to depreciate its land value. So your tax liabilities are higher. The tenants, on the other hand, can depreciate 100% the value of the buildings and equipments to offset the profits from the business.
  2. If the property is damaged by fire or natural disasters, e.g. tornados, some leases may allow the tenants to collect insurance proceeds and terminate the lease without rebuilding the properties in the last few years of the lease. Unfortunately, this author is not aware of any insurance companies that would sell fire insurance to you since you don’t own the building. So the risk is substantial as you may end up owning a very expensive vacant lot with no income and a huge property taxes bill.
  3. Some of the leases allow the tenants not having to make any structure, e.g. roof, repairs in the last few years of the lease. This may require investors to spend money on deferred maintenance expenses and thus will have negative impact on the cash flow of the property.

Sesame Oil Hair Recipes To Grow Hair Long Fast Naturally

Recently I was just as delighted as a lady who shared with me how she found out sesame oil and water worked great to restore the health of her scalp and hair. Consistently using sesame oil for her scalp massages and to apply on her hair has stopped her scalp from itching. Since then, her hair has become less dry and fizzy which makes her really happy.

It is indeed good news from her and I am as delighted to hear that she found that sesame oil does wonders for her scalp and hair. Incidentally, sesame oil is something I also use occasionally for especially my scalp massages.

In fact, I use a variety of oils and it all really depends on how I feel or what recipe I feel like doing during a certain period of time, like for a couple of weeks. I ‘spontaneously schedule’ and rotate my hair recipes while exploring new stuff or new ways to mix and match the ingredients I know work to grow hair long fast.

I will share some sesame oil recipes to grow hair long fast. However, if you wish to give sesame oil a try, as always, you need to first check with your doctor for any allergies – especially if it is something new to you. I do know of a few friends who are allergic to sesame, as some are allergic to nuts.

Once you are ready, here are some ways to use this simple and cheap oil.

Sesame Oil Hair Spray

This is the simplest recipe. Put 2-3 drops of sesame oil and some water into a handy and small pump or spray bottle that you can with you. Before use, just give this mixture a good shake to mix well. Then spray or squirt some on your hands to apply to your hair ends. Well, now you have a handy little bottle of hair spray or hair moisturizer to use throughout your day as and when you need.

Hair sprays are the easiest to make and can be very handy especially when I know I need to be outdoors like in the sun, in the park, on the beach, etc. After a swim and after I wash my hair, using just a little of this natural spray does wonders to moisture dry hair.

Sesame Oil Scalp Massage

Follow these 6 steps for a-feel-good sesame oil and scalp massage:

Step 1 – Comb your hair. Wash your hair clean and dab dry.

Step 2 – Apply sesame oil directly on to your scalp using your fingertips. Do not apply on to your hair ends. Now, massage your scalp for some at least 5-10 minutes. Get the oil to penetrate into your scalp skin or pores.

Step 3 – For dry, coarse, brittle or fizzy hair, apply some sesame oil on to your hair ends with the palm of your hands. Glide them evenly onto your hair or use a comb.

Step 4 – Leave on for 30 minutes. If you feel you want to wrap your hair up in a warm towel, this is great too, especially for dry textured, fizzy or coarse hair.

Step 5 – Otherwise, you may leave this on overnight. Just remember to use a cloth or towel to cover your pillow. Wash this off when you wake up the next day. Otherwise, you may also skip this step and move on to Step 6.

Step 6 – Wash and rinse your hair with mild shampoo. Your hair is clean. There is no need to wash until it is too dry and ‘squeaky clean’. It is alright if your hair feels ‘moist’. Otherwise, if it feels too dry, especially for dry textured hair, you may want to spray some moist to it later. Another way is to add honey to your mild shampoo as a conditioner.

Sesame Oil Hair Conditioning Warm Treatment

This is not something you need to do every day as this takes more time to do. For dry, coarse, brittle and hair with split ends do this routine once or twice a week, for a good start. Then you may lessen the number of times depending on the condition of your scalp and hair.

When you are ready, here are 6 simple steps to follow:

Step 1 – Comb your hair. Wash your hair and dab dry.

Step 2 – Put sesame oil in a small flat-like dish. Place this dish on a mug of steaming hot water to warm the oil.

Step 3 – Apply warm sesame oil on to your scalp lines or skin – again, not on your hair, yet. Take your time to do your scalp massage really well.

Step 4 – Apply or ‘glide’ sesame oil evenly on your hair, especially hair ends. Use a comb to do this evenly.

Step 5 – Wrap a hot towel over your hair. Leave your hair wrapped for 30 minutes to 1 hour – this really depends on your own convenience and time.

Step 6 – Remove towel, wash and rinse hair with a good mild shampoo.

Take your time to have fun, play around and fine tune your recipes to best suit you or suit your scalp and hair condition.

I always have a fun time exploring my ‘grow hair long fast’ recipes and I hope you find this information useful and have fun exploring too!