How would you value a closed brewpub in a premium location?

Question

I'm curious to know how you would value this property. It's a well known and popular brewpub/restaurant/rec area with waterfront access to one of Milwaukee's rivers. It appeared to be very successful until it closed with almost no warning last month for unknown reasons.

It's not a going concern and no financials are likely available, so you can't value it in relation to owner earnings or gross revenue. You could value it as real estate + assets but (a) it's really hard to find comps, and (b) even if you had them there is no way to directly extrapolate financials from the asset values.

Any thoughts?

For an even harder challenge, how would you value it in combination with this property, which is owned by the same seller and directly opposite the first one, but has a completely unrelated use?

Russell Brazil · Answer

As a beer aficionado, I am glad that this is not available for sale in my local market or I might make a really bad business decision.

Meghan McCallum · Answer

Man,

This is tough. I love Milwaukee, RE, and beer...yet I don't believe there is a deal to be had here until they get desparate enough. Truth be told...Milwaukee Milenials will drink ANYWHERE. So, you'd pay a premium to be on the water, in a building, that their parents would want to go for a drink.

I've always wanted to own a bar/restaurant in Milwaukee...but, the advantage in Milwaukee is that you don't need a place that has crazy overhead...they drink no matter where, what, or why.

Jeff B. · Answer

Even though popular, brewpub/restaurant are high overhead, low margin businesses.

Restaurants have one of the highest failure rates known.  It takes lots of experience to manage and run one and not for a first time operator of such imo.

Ramon Jenkins · Answer

I totally agree with Meghan

" Milw is that you don't need a place that has crazy

overhead...they drink no matter where, what, or why. "

Joel Owens · Answer

Average household income 1 mile is 36,000. National average is 54,000.

36,000 in 1 mile is considered a poorer area. Not much discretionary income to eat out on a frequent basis. If they did eat out likely they would want cheap beer on a budget. The money is in the mixed cocktails as the beers have low margins.

My area for example we have upscale restaurants outside my subdivision but median household  income is about  90,000.

The price they are wanting for 1 million an acre is crazy. I wouldn't touch it with a ten foot pole. I could buy an existing business across the country for that type of money in business for 20 years throwing off 500,000 a year cash flow profit or more after expenses.

The hardest thing to do is take a vacant restaurant and make it successful under a new concept. The reason is the stigma over the old concept that failed. Looking pretty will draw them in but the service and food better be fantastic for the money or they will go to one of the other hundred restaurants within driving distance.

Dan Wallace · Answer

This seems to be a somewhat common phenomenon. I have a client that also started as a microbrewery restaurant and then decided to focus on the beer distribution and sell the restaurant operation. It used to be the beer was used to sell food but now the food operation just gets in the way with the explosion of microbrews across the US.

As for how to value this business the build-out seems very nice but without an existing restaurant operation I am not sure how you would be able to properly value. It appears the best use would be for another restaurant operation to come in, possibly an existing, established restaurant to open an additional location. The location does seem to be unique which further complicates valuing the property.

We have a team that is working on a distressed Milwaukee portfolio that should be familiar with the area so I will ask what they think.

Pat L. · Answer

excellent !!!

But having grown up on topless & naked beaches it was just too crowded to wait that long for a beer :)

Pat L. · Answer

That new bikini coffee bar in Arizona would be my idea of a successful well attended franchise. I believe company supplied uniform costs would be minimal & the coffee & food could be below average & way overpriced.

Years ago there was a bikini bar near our home in Kisseemee FL & (although I never went) I heard it was packed.

Joel Owens · Answer

Anyone thinking of owning a restaurant go work in all fashions of the business for awhile and your eyes will be OPENED.

It's a very tough business. People think "everyone has to eat" which is true but they do not have to eat at your establishment.

If your food is too expensive, bad quality, inconsistent ( great product but made great and other times mediocre), poor customer service, etc. then the business will fail. It's only a matter of time. If you have less competition in an area then you do not have to discount as much to drive sales and customers will put up with more BS as they have limited options. Quality areas with many restaurant choices you can't do that.

The demographics from the flyer even in 3 or 5 mile radius is not impressive at 40k + for 3 mile and 50+k for 5 mile.

As I said food and beer are what brings people in but the spirit drinks, appetizers, and desserts is where the profit is at. If your majority of sales is cheap booze and low margin foods you will fail.

Look at the show "bar rescue" with Jon Taffer. I enjoy watching those shows.

How would you value a closed brewpub in a premium location?

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