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Alan Snel

Las Vegas restaurants are making a comeback

10 November 2015

The Great Recession delivered a major blow to the Las Vegas restaurant market, but now the local restaurant scene has recovered to the point that it is among the most competitive in the country.

That's the observation of Jim Haslem, a California lawyer who specializes in restaurant lease deals and was a speaker Monday at the Restaurant Finance & Development Conference at Wynn Las Vegas.

Indeed, the Las Vegas restaurant industry is growing on several fronts, from national chains such as White Castle opening their first Western U.S. stores on the Strip to a variety of independent concepts debuting from Summerlin to Henderson to downtown Las Vegas. Even Chick-fil-A is coming to Las Vegas.

"This is as competitive a market as there is," said Haslem, a lawyer with the firm of Huntley, Mullaney, Spargo & Sullivan in Roseville, Calif.

There's not just competition among restaurant brands in the Las Vegas market but also between restaurants and retail grocers such as Whole Foods selling to-go meals, Haslem said.

Haslem joined Lewis Gelmon, who worked on real estate deals for Johnny Rockets and is opening three Johnny Rockets locations in Vancouver, Canada, in 2016, to discuss, "Negotiating and Renegotiating Your Leases."

Both Haslem and Gelmon agreed that restaurants should not pay more than 13% of their gross revenues for rents. In fact, Gelmon said restaurants should aim for 8 to 10% of their revenues being earmarked for rent.

Haslem said many restaurants struggled to break even during the recession, so there was a "re-set" of the financial expectations of what a restaurant tenant could afford to pay in rent in markets such as Las Vegas and Phoenix.

He recommended that restaurant owners should "right size" their rents to find the "right rent for the specific location."

Gelmon also noticed another trend: Restaurants are seeking smaller spaces for their sites but finding valuable customer areas in patios and other common spaces in malls.

The three-day conference includes workshops, seminars and a large exhibitor area where lenders and investors such as Bank of America and Wells Fargo network with potential restaurant owners and franchisees. It's an industry conference not open to the public.

While there were the big-name lenders there were also boutique financial consultants, such as The Cypress Group, a Denver-based company that advises franchisees on both refinancing their deals or selling multiple restaurant units.

"It's a chance to network with people in our industry," said Alan Dillsaver, of The Cypress Group.

Some national brands were also in Las Vegas and at the conference to network with potential franchisees.

Consider Athens, Georgia-based Zaxby's, a quick-service player in the chicken segment that has 715 stores in the U.S. Its most western outpost is Utah, but Zaxby's is sniffing around Las Vegas for a potential franchisee, said Tray Doster, who handles franchise development for the 25-year-old brand.

"Las Vegas is a great market. We're slowly growing our brand west," Doster said. "We're chatting with people in the Las Vegas market right now."

Of the company's more than 715 locations, 80% are franchisee-owned and 20% are company owned. While real estate costs vary, the investment to open a Zaxby's store is about $2 million, Doster said.

Not every conference participant was a lender or franchisee. Mike Brann, who owns 10 Brann's Steakhouses in Michigan, was there to meet vendors to buy better products at better prices.

"The name of the game is growth," Brann said Monday.