The first funding options
In an ideal world, full-service restaurants would not need outside capital. They could fund growth off their existing balance sheet, which, while slower, provides them full control of their destiny.
Throughout its 29-year history, Cameron Mitchell Restaurants (cmr) has largely, though not exclusively, relied on internally generated capital to fund growth. Though CMR chief financial officer J.R. Dehring regularly fields inquiries from different investment agents, he says CMR espouses a more conservative approach to resist stretching its teams too thin and to avoid any stress-inducing financial burdens.
“We build what we can off our own balance sheet,” Dehring says. “We’re not interested in pushing too hard, too fast.” Accordingly, the Ohio-based enterprise targets about half a dozen restaurant openings each year.
Even for robust organizations like CMR, however, self-funding has become more difficult of late. The pandemic hampered cash flows while labor, supply chain, and inflationary pressures linger. In this climate, one notable opportunity—and perhaps the most likely source of growth capital for today’s full-service restaurants—has emerged: landlords and other affiliated partners.
LJR Hospitality Ventures president Larry Reinstein, who advises restaurant companies on strategic approaches to raising capital, calls landlords the “new banks.” Many developers, he says, see full-service restaurants as anchor tenants capable of drawing people to their properties. While the landlord contributes opening capital and offers favorable tenant improvement allowances, the restaurant group delivers valuable expertise to reduce risk.
“Now, developers and landlords aren’t doing this for everyone, but it’s a definite option for well-run concepts or emerging restaurant groups,” Reinstein says.
When CMR opened Del Mar in Naples, Florida, last December, for instance, it brought in about 10 investors. While strategic partners invested a sizable chunk of opening capital for the 9,200-square-foot upscale eatery, CMR supplied the rest, retaining partial equity and netting a management fee in the process. Using CMR’s sterling brand equity rather than its financial equity, Dehring says CMR will continue to investigate creative opportunities to raise money for new concepts, specifically one-off management deals.
“As our name recognition has grown, there are developments wanting to work with us,” Dehring says.
Hamburger suggests that full-service restaurants looking to grow contact owners of vacant spaces, particularly second-generation restaurant locations, to see if there’s willingness to participate in a buildout and opening.
“This is a particularly good spot to start right now,” Hamburger says.