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Commercial real estate renovations can be a risky bet

On behalf of Lang Law Office posted in Commercial Real Estate on Friday, April 21, 2017.

Investing in a new business property is risky and it’s never guaranteed to pan out. Investing in an old business property, and renovating it into a better one, is also a risky venture that doesn’t come with any guarantees. Nevertheless, this is what the new owners of St. Paul’s restaurant, The Lexington, have done. They’ve spent approximately $5.5 million in renovations and improvements.

The money spent on The Lexington has made it one of the most costly restaurant renovations in area history. Adding to the risk is the fact that The Lexington was closed for three years. Some people are questioning whether the restaurant can be a success after all this time, especially with such a massive investment up front. However, according to one industry veteran, a lot of the restaurant’s success will depend on its location.

Most restaurant industry analysts agree that the amount of money the restaurant makes per year, needs to be double the initial start-up costs. As such, if you spend $5.5 million in start-up costs on a restaurant, you’re going to want to make $11 million in revenue in order to cover those costs and keep the business viable. However, if you spend $5.5 million and you only make $7 million, you’re going to be seriously struggling to keep the business afloat.

Minneapolis business that are considering renovations to their properties to improve their business revenues may want to discuss their project plans with a qualified real estate lawyer. Although it appears that the renovations moved forward successfully with The Lexington, one of the worst things that can happen is a legal hang-up in the midst of a commercial real estate construction project. By discussing plans with your lawyer first, you can learn the best ways to avoid legal issues during your renovation.

Source: Twin Cities Business, “Can The Lexington Survive A Second Time Around?,” Burl Gilyard, March 31, 2017