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The Secret Ingredients for Restaurant Success

One of San Diego's most prolific restaurateurs has a recipe for a restaurant's success: low rent. But there's much more to it than that.

SDCM's Matt Spencer says his No. 1 focus when shopping for a new restaurant space for his eatery empire is rents. The lower, the better. That's because low rents up front allow the restaurant to “hit your stride” and get through lean times, he told our audience of more than 200 commercial real estate pros during our 2nd Annual San Diego Retail Real Estate event last week. “The deals that I've done...we basically raised all the money and did all the TI ourselves, and we got that back as a rent reduction,” Matt says. But he doesn't always find landlords receptive to his views. “From my perspective, some landlords churn tenants because they charge too much,” he says. “Landlords sometimes trying to get that extra dollar a square foot…leads to more headaches and bad tenants.”

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Matt was our keynote at the event and, of course, is best known for his restaurants throughout San Diego and beyond, which include Kettner Exchange (here), Devil's Donuts, Firehouse, Analog and Vin De Syrah. While Matt says he seeks out low rents, the space itself still needs to have remarkable vibes for it to work. “The one thing you can't offshore is cool. And manufacturing and creating cool is very hard,” he says, adding one way eateries today need to separate themselves is by design.

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Matt also credits Little Italy Association's Marco Li Mandri for the success of the submarket in recent years. “He can be a hard guy to deal with. But he runs that place kind of with an iron fist,” Matt says, adding that because he runs it that way, he gets to select and groom the best operators while keeping out the fly-by-night retailers and restaurateurs. As for future SDCM restaurants, Matt says he's eyed Cabo San Lucas, Maui and the Big Island, and sees North County as “completely underserved.”

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During our developer panel, our participants—Westfield's Jerry Engen, Paragon Real Estate Investment's Roberto Jinich, HP Investors' Sumeet Parekh and Allen Matkins' Mike Holmes (who moderated)—chatted on the state of San Diego's real estate market. “The market right now is extremely frothy,” Sumeet says. He blames the flood of capital seeking investments for pushing prices up. Roberto echoed those sentiments and says prices are even getting steep in secondary markets.  

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Jerry says what the environment has done is give Westfield a “perfect kind of storm" for reinvesting retail centers. Its redevelopment of UTC is just the tip of the iceberg, he says. With six malls in San Diego, “we're working on plans for most of them,” including Horton Plaza (here) and Mission Valley.