You Need These Skills To Master Real Estate For Ghost Kitchens And Flex-Stay Hotels
You know the opportunity is there. But how do you break out of your lane and take it?
The disruption of digital, on-demand business models isn’t a new phenomenon. But a nascent crop of business concepts offers a growing number of emerging real estate opportunities that are benefiting from a pandemic-era boost.
Flexible, long-term rentals, offering temporary stays for guests and travelers somewhere between Airbnb-length weekend trips and yearlong leases, as well as the continuing proliferation of ghost kitchens and on-demand dining, can be useful ways to lease or reposition underperforming real estate, but only for brokers and commercial real estate professionals with the right skills.
“This requires someone who’s able to play a role, and able to learn multiple industries and mash them up to provide a new type of service,” said Randall Cook, CEO and Co-Founder of Method Co., the company that created Whyle. “In our case, you need to understand how people use real estate, but also hospitality. It’s a unique challenge; guests need something you’d find in a typical apartment, and on the other hand, they sometimes expect it to be like a hotel.”
Whyle operates a rental brand with more flexible lease terms than typical long-term stays.
The core of the challenge is making sense of new, often evolving business models. Longer-term stays, for instance, are seeing new life in markets across the country as business travelers mix work-and-play trips, and a segment of upscale renters, faced with pandemic-era uncertainty, are increasingly interested in trying out cities with new rental options.
“Real estate brokers and property owners need to recognize the way in which people interact with consumerism has changed and so has the dining experience, with an increase of consumers wanting to enjoy their meals at home,” Kitchen United Chief Business Officer Atul Sood said of ghost kitchens. “In a time where there is a lot of distressed real estate, these industry professionals should look at business models that can help breathe life back into their spaces, and sign lengthier leases.”
The Pasadena, California-based firm operates or is opening 18 locations nationwide.
CBRE First Vice President David Freitag, who helped sign a deal for Colony, a ghost kitchen concept on Santa Monica Boulevard in west Los Angeles, said the most important thing for real estate professionals interested in the space is education. These concepts, and opportunities for existing clients, should be part of everyday conversations. Data analysis by Euromonitor suggested ghost kitchens, which have roughly 1,500 U.S. locations today, could be a trillion-dollar industry by 2030.
“Make sure you’re bringing up these types of opportunities, and questions, with your clients,” Freitag said. “How can they take advantage of this trend? I absolutely want to be leading the discussion.”
Another important facet of becoming engaged in these new business models is consistent education and not overestimating your understanding of operations and customer attraction and retention. For Whyle, operated by Philadelphia-based Method Co., Cook said there are key economies of scale and methods of attracting customers that make it hard for smaller multifamily owners to convert units on their own, or only try this model with a handful of apartments. Marketing these spaces, and furnishing them, can be tricky to do unless you understand, or are committed.
“The best scenario for owners who want to dabble is to hire someone who does this full time,” he said. “It requires active, hands-on management.
The ghost kitchen space also requires specialized understanding, especially around zoning nuances, ingress and egress for customers and delivery drivers, and licensing and health requirements, since numerous kitchens will be compacted into a small space. Space setups and operations also vary considerably, as some operators stick strictly to delivery and pickup, while others, like Kitchen United, are more omnichannel, building out locations within food halls and pre-existing restaurants.
Sood said Kitchen United seeks space in “urban, dense and demographically rich areas nationwide,” which translates to existing retail space roughly 6K to 10K SF near urban areas, colleges and universities, which also have access to main roadways and parking spaces to accommodate walk-up customers, delivery drivers and load-in areas for trucks.
Both these models, the medium-term stay and ghost kitchens, have robust expansion plans. Kitchen United will open locations with Kroger and Ralphs grocery store chains, LA-based food halls, and add spaces in 20 more locations nationwide in 2021, with aggressive expansion in LA, New York and Texas in 2022.
Whyle, which currently operates 225 units in Washington, D.C., plans to roughly triple in size in the next two years and add markets such as Atlanta, Detroit and Baltimore.
What these models present is potential, especially for underutilized multifamily or retail space, an opportunity that requires leg work and research. It’s uncommon to sign short-term deals for either type of space on an experimental basis. (Freitag said dining concepts in the ghost kitchen space are typically signing one-to-two-year deals).
With that bullish take on the market, Freitag thinks it’s vitally important commercial real estate staff understand the potential. The ghost kitchen model gives restaurants the ability to fine-tune menus, augment existing full-service restaurant locations, and make existing restaurants more lucrative. (Big multi-location restaurant groups are all exploring how they can use this concept.)
Dismissing these changes as temporary fads might mean missing out on potential fundamental changes in restaurant real estate.