Food Halls Vs. Restaurants: Comparing Investments

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CORONA DEL MAR, CA—Established restaurant chains with strong financials will likely still be valued at a premium over a food hall/marketplace—unless the guarantor has a history that would surpass other chains or operators, Hanley Investment Group’s SVP Carlos Lopez tells We sat down with Lopez for a chat about food halls as an investment category and how they compare to restaurants as investments. What are the latest trends in food hall offerings?
Lopez: Food halls have become a new popular form of draw to retail centers or districts. Some operate as an anchor, and some operate as another retail-concept draw. They may also be called food marketplaces. Grand Central Marketplace in Downtown Los Angeles, the Anaheim Packing House District in Anaheim, CA, the OC Mix in Costa Mesa, CA, and the new food marketplace at Pacific City in Huntington Beach, CA, each offer a unique mix of food vendors that are carefully curated by the operator for each specific marketplace. Theoretically, the Ferry Building in San Francisco and Pike Place Market in Seattle could qualify, since these facilities have multiple retailers and food vendors, each serving a customer base looking for diverse experiences. The food-vending experiences are carefully curated by the operators, with the customer base seeking a unique culinary experience that is far surpassing traditional “food courts” found in malls and shopping centers over the past several decades. What makes food halls attractive to investors? 
Lopez: At this point in time, there hasn’t been a significant amount of sales volume or investment activity isolated to food halls/marketplaces to indicate a value from an investment standpoint. Although the Oxbow in Napa, CA, is currently and quietly for sale, no indication of the status or value is available currently. Whether or not food halls/marketplaces are attractive to investors has yet to be seen because each is so individually unique. How do these investment opportunities compare to restaurant investment


Lopez: Since there hasn’t been a significant amount of activity, it’s tough to say. While food halls and marketplaces may be an exciting new trend and can serve as an anchor to a project or development, the principles of investing in real estate have not changed. In reality, an investor will look and compare this to any other investment in the marketplace. The underlying strength of the tenant that is the guarantor of the income stream will dictate the value that someone will assign to the investment. So in reality, established restaurant chains with strong financials will most likely be still valued at a premium over a food hall/marketplace. Unless the guarantor of the overall marketplace has a financial statement/credit/operational history that would surpass other restaurant chains or operators, an individual credit tenant may be perceived as higher in value. What are the challenges that must be overcome in selling these types of investments?
Lopez: Once again, there hasn’t been much volume. The majority of the feedback that I have heard from some of the landlords who have looked into these type of operations is how extremely management intensive they are. The management requires the oversight of, for example, 20 small food vendors. Within each community, many of the food vendors may or may not have an existing, established following and may or may not have substantial credit/financial resources. Moreover, many operators and vendors (tenants) have shorter-term leases. In addition, individual developers have to allocate time and resources toward the management of the common area of the facility and the management of the vendors of each facility. Additionally, a substantial amount of capital to allocate toward electrical, gas, venting, grease interceptors, etc., is also necessary. What else should our readers know about food halls as investments?

Lopez: Bottom line is that each individual food hall/marketplace takes on the personality in the area/district that it is located. The Ferry Building in San Francisco is unique to that community it exists in and to whom it serves. The Packing House District in Anaheim is unique to the community it sits in and to whom it serves. Trying to duplicate one for the other is not a guaranteed success. Also, having a food hall/marketplace is not a solution to troubled space. Several other factors need to exist, such as substantial parking and a creative owner/operator.

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