Help Reviewing Opportunity in Office Building!

[hj123]

Hello: I am reviewing a potential location for a 750 sq ft. coffee shop inside a newly renovated office ''tower.'' The following are the parameters:

- 9 floors, 102,000sq ft. building
- Composition is lawyers, investment bankers, other business professionals.
- Local competition within 2 blocks, and potentially a food-court type scenario being built accross the street
- Located on ground floor with minimal exposure to street, next door (same building) is a professional office and a major bank
- No other food/coffee in building
- L-shape space, a bit awkward
- Entrance only inside the office building

I''m considering a independant (upscale) coffee shop which serves minimal food (maybe some wraps, muffins, etc.).

Can the kind members of this forum please help with the following:
1. General feedback on the location - it''s a relatively small office tower which probably has around 500 employees
2. What kind of capture rate can I expect for those employees in-building?
3. The landlord has asked for sales projections and also what kind of rent would be supported by those sales levels, any ideas?

Any feedback you can provide (and soon!) would be great!! Thanks!

 

[Jackson]

Can you still bail out from the deal? If the 500 employees have access to free office coffee, I do not think it is a wise business move.

 

[hj123]

Free office coffee effecting sales?

Hello - I'm evaluating the opportunity so I have not finalized anything yet.

I'm curious to find out more about the relationship between 'free' coffee available to employees in a building, and the revenue of the coffee shop downstairs. I would think, of course, that the availability of free coffee in-office would effect sales but would not expect this to curb all demand.

Thoughts?

 

[billagirly]

I work in a large office building where we all have access to free coffee. It is prepackaged Community coffee, and while it's not bad, it's not good. I work with about 20 attorneys and a support staff of about 10, and I must tell you, the majority of us end up in Starbucks (the only other coffee we are in close proximity of) a few days a week, if not once a day.
I would say that if you feel like the rest of the situation could prove to be profitable, and if you feel like you will get customers other than the local businesses so that you don't have to rely on those people to support you, it's probably a good deal. If you do feel like you would need the offices around you to support you though, I'd think twice. Just my two cents...

 

[Leith]

I work in a large office complex that has four buildings for one company that has about 1000 people or so on site. Each floor has a break room with free coffee. The coffee is pre-packaged and is not good. The catering company that runs the cafeteria set up a little room that provides Starbucks coffee/specialty coffee drinks and that place is packed all during the day. My point is coffee drinkers will search out the good stufff and will pay for good coffee.

 

[cafemakers]

How much per square foot? CAM charges?

 

[hj123]

Lease Rates

Hi there: They have asked me what kind of a sales level I can expect and are interested in my thoughts on an appropriate lease rate. I don't know what the other figure you mentioned is.

 

[cafemakers]

It sounds like they're fishing to have you tell them the maximum that you can pay. "How much will it cost to repair this flat tire?" "Well, boy, how much you got?"

Have them throw out the first number and then work down from there.

CAM is "common area maintenance." I had assumed that you were dealing with a NNN lease (which would make you responsible for all utilities, taxes, and upkeep of the shared areas) rather than a "gross lease" that includes all other expenses or some "modified gross" that includes some portion of the expenses.

 

[hj123]

'Grossed-up Lease'

Hi there:

I believe it would be a gross-up rather then triple-net. Thank you for the advice around negotiating a lease. Any suggestions on whether coffee shops in these kinds of situations work well? How would I calculate a 'capture rate' for a shop like this, based on the office building occupants?

Thanks, HJ

 

[Jackson]

If you were able to capture 10% of the 500 employees, and they each spend an average of $3.00 per visit, you could gross $150.00 per day. If you were able to double that figure you could gross $300.00 per day.

If you really want to own a coffee business, but you do not wish to spend a ton of money until you know the water is safe, I may have an idea for you. Search E-bay for coffee vending carts. You may be able to find one complete with everything you need for under five grand. Park the vending cart in the office building, and see what you can sell. Tell the landlord that you would like to use a vending cart for 2 or 3 months first, to see if you will sell enough products to make it worth your while. If you are selling enough, make an offer to the landlord of what you are willing to pay. If the deal goes south, you could probably sell the vending cart on E-bay for about the same price. Actually, because it is February, and cold in most of the country, you may find a vending cart for cheap. You may be able to sell the cart in April or May for more than what you paid.

If you decide to try this, you will not be able to offer as many pastries, or other items because of space limitations. You could type up a small questionnaire, about what your customers would like to see offered in your shop, and maybe offer a free drink to anyone that fills it out. You would have a very captive customer base, and this could help you calculate future sales with a full cafe.

Good luck!

 

[hj123]

10%?

Thank you for the reply Jackson. Is 10% capture of people inside the office building a reasonable assumption? At 10%, a gross of $150 is not sustainable given employment costs (I would eventually want to hire an employee). I wonder if any owners of coffee shops in similar circumstances can comment on profitability?

 

[CafeBlue]

Entrance from only bulding interior is pretty limiting. Little exterior exposure is another handicap. If the groundfloor site does have exterior plate glass wall, perhaps the landlord will modify the building (how much is your lease worth to the owner) to give you an entrance, a sign with exterior visibility, perhaps even patio seating area.
Operating a cart in the lobby is a great test option (and may be a viable permanent option).
You will have to work five times harder to capture sales and regular clients from a neighboring building, even if they have no cafe in direct competition. With no exterior visibility, you can only reasonably hope to gain some of the tenants as regular clients, since the steady stream of visitors to the businesses will not know you exist.

 

[ElPugDiablo]

If you don't have street exposure, then you are going to have to rely solely on those people work in the building so you better know exactly how many people work there. You should not estimate this, and your landlord should have this information available. You can do pretty well if the number is high enough. But 500 is pretty accurate, then it might be tough.

 

[futurecoffeeshop]

From my limited experience I'd be very careful about "opening the kimono" to the landlord as far as your financials go. I've had a few property managers ask me to do the same thing. I have a concept business plan for landlords that basically explains how great I am, and what an awesome business I have etc. but has no detailed financials. They are in the business of collecting rent, I'm going to be in the business of making a living. Then I have a full financials plan for lenders, etc. Don't forget what YOU are bringing to the table for the landlord. You are going to pay rent (and probably some of his common area maint or CAM costs) on a space in his building that would probably otherwise be empty. Without exterior access/signage (can you even put up an exterior sign) you have a limited audience. I like the idea of starting with a cart. I'd ask for free rent for three months for your cart and see how it goes then negotiate rent. If you don't like this location try it somewhere else, etc.
Just my thoughts.