Mehran  Mazinani, Realtor  (Equity )

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Rainmaker
849,262
Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

Knowing a little something about this, I would advise your friend to run and seek a different opportunity.

If this is not in your area of expertise, I would advise you not to advise your friend on this matter...things could get ugly.

On a further look, this is you customer?! I would drop any further discussion with your "customer" if this is not your profession.

Jun 24, 2016 10:08 AM
Rainer
317,610
Caroline Gerardo
Sun West Mortgage Corporation - Newport Beach, CA
C. G. Barbeau the Loan Lady nmls 324982

Have this person and a family member work in a Starbucks and an independant coffee shop in the market area FIRST. Are they early risers? ARe they EXCELLENT at hiring and motivating underpaid employees to smile and work hard? 

Cheap location = no traffic

No name brand = fight to get new clients to love and be loyal to you

Franchise costs are not just start up. You are stuck ordering from them, buying at their prices, using their wallpaper and paying them forever. Advantage is you don't have to dream up marketing posters. You will need to own several and be an accounting genius to manage employees and costs. No employee works over 31 hours, figure out how to dim your lights to save on utilities, and don't waste food.

Where does person think they want to live?  Not just lease costs but look at costs to deliver food, employment hourly laws, access, taxes, city fees, license fees, and then some

 

Jun 24, 2016 07:04 AM
Rainmaker
5,587,375
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Mehran,

Here a few things that are unclear.  Is this use a coffee shop that serves cooked food?  Or is it like a Peets or Starbucks?  What size space is he looking for?  A typical small coffee place like Starbucks can be somewhere between 800-1200 square feet.  This usually means a NNN lease, which means in addition to the cost of the store, there is a fee of prorated Taxes, Insurance, and Maintenance.  How long of a lease term is this person looking for.  You have to show the landlord staying power of 5 years, and a good financial statement.  At $3000 a month, you have to show the ability to pay that rent plus annual increases.

In highly desirable places the rate per square foot can quite high,  On a 1000 square foot store, it may run as much as $3,000 per month.  Tenant improvement should not be as high as you are allowing as long as you are not cooking.  Other items to look for is parking...In CA where we love our cars, parking is a requirement.

Given what you have shared, I would say this person needs to locate in an up and coming area.  A

 

Jun 24, 2016 06:58 AM
Rainmaker
894,690
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Is this a startup? Does prospective have experience doing this? Business background? Too involved analysis for here. If you are not a seasoned CRE broker, you may want to partner with one. I have seen people wake up one morning and decide that they wanted to start a biz, fail and lose a lot of money. From the choices laid out, the only one I would even consider (if that person passed the sniff test for a business owner to begin with) is #1, except negotiate some of those TI costs with the landlord amortized over the life of the lease possibly. As far as location, to start off on a shoestring I don't think San Jose is a good place because costs are extremely high there - most of Southern California. He should already have researched demos and psychographics of several areas. A lot goes into this, not the least of which is an extremely detailed and well-thought-out business plan and a well-capitalized beginning. Landlords are very skittish about startups. You have to really show them on paper that you got this through the life of the lease. And if you're personally guaranteeing that lease, and you have any assets . . . you'd better be sure.

Jun 25, 2016 12:29 AM
Ambassador
2,570,797
Fred Griffin Florida Real Estate
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

     I am observing this conversation from Florida.  Interestingly, the advice and answers you are receiving would apply here in Florida.

     We see the small coffee shops come and go.  Even the not-so-famous franchises just cannot square off against Starbucks.  It grieves me to watch somebody putting $100K to $200K into something that just isn't going to work.

     Best to you.

Jun 24, 2016 12:14 PM
Rainer
66,028
Cody Carmen
Adhi Schools, LLC - Rancho Cucamonga, CA
Market Analysis--Educational Content, Adhi Schools

Ryan Huggins - Thousand Oaks, CA explained most of the decision making. I would say that your question contains some very...odd information. I'm not sure what you and your client believe can be built in Bay Area or Southern California, but 75-100k is almost certainly not going to beat an existing property in "interior design." I would take that off the table. I do not know enough about your financing situation to advise elsewhere and that is not my area of expertise. 

I also see your location as Salt Lake City. I would be careful not to practice real estate somewhere you do not have a license. Unless, of course, this is an old question from a textbook when 200k was a lot of money. 

Jun 24, 2016 06:45 AM
Rainmaker
1,387,183
Ryan Huggins - Thousand Oaks, CA
https://HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Mehran, thanks for the vote of confidence!  This is a tough one, since I've not had experience in this arena and really don't know much about commercial RE.  I did however once contemplate opening up a coffee shop next to a hospital I used to work at.  No coffee anywhere near by!

With that said, my thoughts are on the independent vs. name brand stores.  We have a few of each in my town, including larger chains like Starbucks and Coffe Bean, and some smaller chains like It's a Grind and Beanscene.  Each has their own unique culture and appeals to a different crowd.  Out here the Starbucks are moving to have drive throughs, even closing down established stores to move across the street or three units down to get a drive through.

 

From what I've heard about fast food franchises, you really need to have five of them before you start turning any real profit.  That was about 5-10 years ago though and referencing McDonalds.

 

To me the franchise v. botique is the same discussion as we sometimes have here about what company to work for, the big Re/Max or Keller Williams, or the small independent company.  As an independent company (or coffee house) you'll have to spend more on marketing and customer acquisition, but you get to create your own "vibe" and do your own thing.  The independent houses out here make coffee & tea, but they also make sandwiches, have live music or poetry readings, some make italian sodas... basically a "hook" to get people to come in and stay awhile.  Starbucks, you just pull up their app and you can find the nearest one.  You know you'll get the same coffee at any location in the US, so you know what to expect.  Independent, not so much.  Independent you can do your own politics, national brands you can only do what the corporate wants.  Want to serve drinks in a festive Christmas cup?  Want to wish your customers a Merry Christmas?  Not if you have a Starbucks!  Want your buddy who has a food supply company to supply your sandwiches, only if you're independent.

 

Out here too, the smaller chains and independent ones tend to be "off the beaten path" and by hotels and such.  The chains can afford to be in the malls and in the center right off the freeway.

 

I'd suggest first deciding on chain v. independent and letting that drive the location strategy.  Chains can afford the pricey locations or the office complex.  Independent locations speak more to the millenial/hipster groups, so you'd want to focus on places where they congregate.  Warning though, Downtown LA and West Hollywood are going to be expensive.  One other thought that takes me back to the hospital I used to work at, find a place where coffee is needed and unavailable.  That hospital, for example, had horrible drip coffee and the cafeteria was only open a few hours a day.  A coffee shop (even the dreaded Starbucks) would have made a mint there... because of a lack of competition.  The subway there did a booming business because the cafeteria food was so bad and subway was in walking distance.

 

Long winded answer.  I think it boils down to deciding on the brand you want to do and then really researching the psychographics of the brand's customers (or customers of independent shops) and then researching the psychographics of the various areas.  Ron and Alexandra Seigel are experts at this (and if you go with a Starbucks I'll guarantee that they have this down to a science) and know a great deal about the commerical RE side too out here.

Jun 24, 2016 06:28 AM
Rainer
12,730
Mehran Mazinani
Equity - Salt Lake City, UT
Realtor

I would love to know what you, Ryan Huggins, think.          

 
Jun 24, 2016 05:48 AM
Rainmaker
821,932
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

This is much too specific for an outsider to weigh in on; you have to do the numbers, know the economic vitality of the areas in question, the competence and preferences of the customer and so on. Impossible question.

Jun 25, 2016 01:01 PM
Rainmaker
1,519,141
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • GRI • HAFA • PSC Calabasas CA

If you have no understanding and experience in this field( buying an existing business vs creating a new one from scratch), I'd advise you not to advise anything. All choices require a lot of research and homework. 

Jun 25, 2016 08:40 AM
Rainmaker
1,921,264
Anthony Acosta - ALLATLANTACONDOS.COM
Harry Norman, REALTORS® - Atlanta, GA
Associate Broker

Parked and reading

Jun 24, 2016 11:22 AM
Rainmaker
1,153,675
Sam Shueh
(408) 425-1601 - San Jose, CA
mba, cdpe, reopro, pe

 To buy an existing coffee shop in SJ with min inprovements. Skip the franchise fee to maximize margin. If he can regroup his investment in 2 years he is doing fine. Location is everything. If he likes southern CA that is fine.

Jun 24, 2016 06:50 AM
Rainmaker
634,282
Kathleen Luiten
Resort and Second-Home Specialist - Princeville, HI
Kauai Luxury Ocean Home Sales

Caroline Gerardo gave you some good information. As far as location market research is crucial.

Jun 25, 2016 07:14 PM
Rainmaker
4,433,703
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I would refer the client if I do not have experience in that field. 

Jun 25, 2016 12:00 AM
Rainmaker
4,189,651
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Wow..interesting read and comments..learning something.

Jun 24, 2016 11:53 PM
Rainmaker
6,607,193
Roy Kelley
Realty Group Referrals - Gaithersburg, MD

Good luck.

Jun 24, 2016 08:52 PM
Rainmaker
1,231,599
Mary Yonkers
Alan Kells School of Real Estate/Howard Hanna Real Estate - Erie, PA
Erie/PA Real Estate Instructor

Best of luck in California.  My expertise is residential in Pennsylvania.

Jun 24, 2016 09:36 AM