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N O V E M B E R 2 0 1 6 / S C T 45 AS THE INVESTMENT REQUIRED FOR SUCCESS GROWS MORE DAUNTING, DEVELOPERS ARE TAKING STAKES IN THEIR FOOD TENANTS By Joel Groover LANDLORDS When owners start taking equity stakes in their food ten- ants, the traditional roles can blur in some interesting ways, notes Spencer Bomar, an Atlanta-based principal of the na- tional retail group at Avison Young. "In some cases [land- lords] are partnering with chefs, and it is going as far as them sharing in the percentage rent," he said. "They are becoming true business partners." According to a National Restaurant Consultants report on this year's trends, the nation's roughly 1 million restaurants racked up some $709.2 billion in sales last year, up roughly 3.8 percent from $683 billion in 2014. The firm is forecasting even stronger restaurant growth for this year, perhaps slightly better than 4 percent, amid predictions that Millennials will keep spending liberally at bars and restaurants. Along the same lines, a CBRE report published last July cites food-and-bever- age as a clear outlier relative to other retail categories. "Between 2012 and 2015, the restaurant segment not only grew more than any core retail category, it also showed the clearest and most consistent acceleration — a key indicator of growth po- tential," CBRE researchers reported. Last year U.S. restaurant sales outstripped those of groceries for the first time, according to CBRE's report. The trend toward food halls, food trucks, chef-driven restaurants and the like is no fad, the researchers maintain. "There is mounting evidence that the growth in res- taurant sales has more to do with fundamental lifestyle changes than purely cyclical trends," they wrote. The forward momentum of the food-and-beverage sector comes amid reversals elsewhere in retail. "Soft-goods retail categories like apparel are facing e-commerce penetration and other challenges," said Melina Cordero, CBRE's head of retail research for the Americas. "So landlords are looking toward restaurants as a high-growth category." But independents seeking to lease retail space often need a lot more help than their national chain counterparts, experts say. "Money is always a challenge for the independent restau- rateurs, and for independent retailers, for that matter," said Anne Mastin, executive vice president of leasing at Steiner & Associates. "These are tenants that don't have the same access to capital as the publicly traded companies." The cost of store build-out, in particular, is rising as more independent restaurants strive to set themselves apart with architecture, art, finishes, lighting and similar visual cues. "Customers are very demanding in today's environment," Mastin said. "They want that special experience." This is why landlords are also spending more to create sump- tuous surroundings for better-quality food tenants, observers say. To create The Pizitz Food Hall, which is opening this winter in downtown Birmingham, Ala., Bayer Properties needed to make M ore landlords are becoming business partners with their own foodie-friendly tenants — particularly at up- scale centers where wooing the right eateries can require sizable upfront investments. "We're seeing more situations where, to get the sexy restaurants they want, landlords are making tenant-allowance contribu- tions of $300 or $400 a foot, which, in some cases, is disproportionate to what the restaurateur is putting in," said David Orkin, an executive vice president and the restaurant-practice leader for the Americas at CBRE. "Some landlords are saying, 'Hey, if I'm taking that additional risk, then I might as well take an actual ownership position — in addition to getting returns on my real estate and the build-out money that I put in here — because I'm already effectively the restaurateur's partner.' "