When a restaurant is doing poorly, what should a landlord or a banker do with their restaurant collateral? Neal Sherman from TAGeX Brands offers his opinions on this episode of Blackbird TV with David Fiegel.
About this segment of Blackbird TV
Recorded: March 23, 2021
Published: October 12, 2021
Joining me today on Blackbird TV, this is another segment on restaurants and Neal Sherman from TAGeX Brands, one of the largest in the universe at selling used restaurant equipment. And Neal, I’d like to talk today about the old days and before the pandemic and what happened and when there was a restaurant closure and what’s different now and how we might help our bank friends get through the problems that we’re seeing in our marketplace relative to restaurant closures and equipment values in those things. So how is it different now? What used to happen when a restaurant closed and a bank was involved? Thank you, David, for having me on. You know, it reminds me of dog years, right? Pandemic years when you’re in a human’s life is like seven dog years. I think one year and pandemic’s life is like, I don’t know. Twenty for some people. And there are dog years. There are dog dog years. Way back when, twelve months ago, before the pandemic, bankers had options, they had options. They could collaborate with somebody and hope that the economy or the operations would turn around. They could find another operator to take over in conjunction with the landlord or, they themselves were the driver of the decision. And the one thing that’s different is there was a line out the door of people, David, that wanted to take over restaurant space. Something about restaurants, is always appealing to people. You’re one of the key guys on turnarounds. Right? And you could always put another operator in there and try to make it work. You rebrand it, you paint it and you make it a little bit different. You give it a different name, but the kitchens, the kitchens, the kitchen, and you you maintain all that in-place value to all those assets. Correct. And you bring in a new operator or maybe the operator was an assistant chef or something else, didn’t own the location. And you got a good shot at it. If they’re a good operator, unless the location is a complete dog? And what’s happened is, due to a lot of things, the pandemic has shortened that line, there’s not as many people lining up and to open up a restaurant or to take over a restaurant. And as a result of that, the options for the bankers have narrowed. They can either choose to try to keep somebody operating because as the mob says, dead men don’t pay. So if you put somebody out of business, you can’t necessarily generate a return on your, you know, the debt affiliated with equipment or if you’re the landlord for rent. And so what’s happening now is that they’re more thoughtful, gingerly, maybe stepping on toes along the way to try to keep keep somebody operating in there, because the option, as the number of buyers for equipment declines, on a macro basis, is that they’re going to have to deal with an empty space for a long period of time. What’s happened, interestingly, in some of the bigger cities, marquee places, Boston, Chicago, Los Angeles, marquee locations. The landlord is saying, I’m going to mothball this, I’m not going to bring in anybody and liquidate it. I own this building. I’m gonna ride this thing out. Just shut it down, drain the pipes and wait till this comes out. If they own the real estate. More dog years, and then we’ll open it back up again. I’m not suggesting that’s the right strategy, but it’s what’s being done. And the landlord’s doing that, and the bank goes along with it. And so long as they can can kick that can down the road a little bit. Perhaps, you know, there’s better days ahead. So the alternative to doing that, if if the landlord needs to re-let the space or the bank needs to close the loan and get it off their… Whatever they need to do is you either sell it in place, with the cooperation of the landlord, or you have to drag it all out and put it in a warehouse and sell it. And that’s expensive. So there’s some deep dive on the analysis as to the cost benefit of those, which is beyond the scope of this conversation, but things to consider and things to talk about as you work through these. But if I’m hearing you right. Perhaps the best thing for these people to do is wait it out a little longer. Try to hang in there. I… you know, so much has changed. It’s interesting. People were, you know, trying to speculate as to when the restaurants will open back up, when will the occupancy go from zero to 25 to 50 to 75 to 100? I think people’s, you know, tastes have changed. I think their habits have changed. I think there’s some people that were forever affected by this and other people are just “get me out of the house. I need to go out and have social interaction.” And after a year and I’m in the restaurant business and I’m a big advocate of all restaurant operators, my wife and I, when we became empty nesters once or twice a week, we’d go sit at the bar, have a drink and eat at the bar. It was the first time we did it in a year, because it shut down these bars. So I think that, you know, I think the world will come around. I think the vaccines are helpful. But I wouldn’t I wouldn’t move too quickly. Wouldn’t move too quickly, if I’m the operator to close, I wouldn’t move too quickly to put the hammer down if I’m the bank or the landlord. Sage advice from a war horse who knows more than most. Neal, thanks for sharing all your information and all your knowledge today. It’s great to have you. Thanks, David. Appreciate it.