 and welcome to Restaurants Hawaii on Think Kauai. I am your host, Cheryl Matsuoka, the executive director of the Hawaii Restaurant Association. Restaurant tours know this. They're top three largest expenses, payroll, food and beverage, and commercial rent. Today we're talking about commercial rent, and I have three speakers with me today, and they're all have years of experience in the commercial leasing environment here in Hawaii. So first, ladies first, I'd like to please have Stephanie introduce yourself. Hi, I am Stephanie England, general manager of Kamakana LEE. I came to Hawaii in 2006, and have been here since. My work initially in real estate started with tenant coordination and construction related elements. And in 2016, I was offered a position with JLL to bring out of the ground and open Kamakana LEE, which was my construction experience, certainly helped facilitate that project and allowed me a lot of information and back knowledge to be able to help with that process. But I currently, as I said, am managing Kamakana LEE. And prior to that, I managed eight other properties from, you know, Aina Haina shopping centers like strip center, Kahala Mall office buildings, and the like. So certainly real estate has been my forte for many years now. Very nice. Welcome Stephanie. And Devin, please introduce yourself. Hi, I'm Devin Higa. I'm vice president for National Retail Leasing with JLL here in Hawaii. I've been in commercial real estate for about 15 years now, originally with general growth properties and work primarily on landlord representation for our company here in the state. Some of the major projects that work on our Kamakana LEE out in Kapolei, Wynward Mall, in Kaneohe and Kukui Grove over on Kauai. Nice to meet you Devin. And I have also Biff. Hi, Biff. Could you please tell me? I'm Biff Graeper. I'm a retail restaurant salesperson with Collier's International and a restaurant consultant. I have over 30 years of senior restaurant experience in managing and profitability of restaurants. And I have over 20 years experience doing restaurant transactions in real estate. Thank you, Biff. Today we're going to be discussing commercial lease and the future of commercial lease agreements. I just have a few questions that were sent in from our viewers. Number one, what are some of the ways COVID-19 has affected the restaurant real estate? Biff, you want to take that one first? Sure. There are lots of things that happen. As reported in the media, restaurant mortality has gone through the roof. There were people who were unable to adopt to outdoor dining, meal delivery services and curbside pickup and things like that. They failed. And businesses that were marginal prior to COVID-19, they failed. And so there's been a high degree of restaurant mortality. And the government forced shutdowns and operational restrictions had led landlords and tenants both to examine what they're doing and build into future leases, the unforeseeable circumstances that a pandemic can create. So both landlords and tenants are getting more creative in the force majeure end of their leases and coming up with ways to improve that. They're negotiating protections in their leases when they're unable to fulfill their obligations. And it could happen on both sides, landlord and tenant construction issues, getting permits. Building permits have become a big issue, particularly since COVID. And easily, they get to 12 months to get a building approved. And construction materials, there's been a lot of delays in construction materials affecting the real estate. And it's getting hard to paint things in there. Supply chain disruptions and furniture fixtures and equipment are taking longer to get here. And sometimes they're totally unavailable. And restaurateurs have to get very creative in having all the furniture fixtures and equipment at the store to get open on time. And there have been changes in the infrastructure of premises. High air filtration has become important. And people have gone to a lot of touchless doors, automatic doors, automatic soap dispensers and things like that. So there have been changes in the infrastructure for restaurants also. It's pretty much what I think. Well, everything that you've touched on, I have seen in our restaurant that have been incorporating everything to create a safe environment for our patrons and our employees. Stephanie, do you have anything to add in some of the ways that COVID-19 has affected the restaurant industry in real estate? You know, I think the only thing I would add, you know, to kind of carry on what Beth was saying is that, you know, we had some tenants that did an incredible job. And I'm very proud at Kama Kana Li'i that we didn't lose tenants as a result of COVID-19. We had incredible partnerships with landlord and tenants that were able to come together and figure out solutions to the lease structures that were in place and deferment of rent and all of those various elements. As a shopping center, we had an obligation to do our best to reduce expenses anywhere and everywhere we could with the common area expenses and things like that. And so we were able to accomplish many of those strategies, tactics, and things to be able to help reduce some of those expenses to help our tenants sustain themselves through COVID. And I think the stories that we have to share, those tenants who truly pivoted, who truly took on that responsibility and, you know, became an example of how to take a sit-in signing-in experience and pivot that to become a take-out-only business for an extended period of time. As a shopping center, we implemented various programs throughout the center to facilitate the curbside take-out and things like that. Our marketing campaigns were incredibly integral in that process as well. We did various campaigns that encouraged our customer to come to the center, take out and go home to dine at home. So, which was, you know, in our community, that was critical. That was a very common pattern for our customer base, you know, originally. And people were craving their favorites, you know, but they wanted picking Cajun. They wanted, you know, those delicious foods, cheesecake, factory, CPK. And so I think it's important to note that it can be done, it has been done, and we at Comic Con at Elite did it very well. Yes, you did. When I took the tour there with you, Stephanie, I noticed that your food hall area is all open air. It's right there in the breezeway with a lot of picnic tables out and families enjoying all of the different restaurant offerings. So, excellent, excellent. Devin, do you have anything that you want to add, how COVID-19 affected some of our restaurants, what you saw restaurants was doing? I think Biff and Stephanie hit on most of them. I would say the only other thing that I think has been a significant impact from COVID is the labor, or the impact of labor and the availability of that. There's, like Stephanie said, a lot of pent up demand in terms of people wanting to go out and eat and do more activities with families and friends and get together. And I think just restaurants, in terms of the ones that we've been talking to, our existing ones and ones that are looking to expand and take advantage of some of the opportunities out there have been kind of constricted by that labor and being able to staff all of their restaurants from open to close. So, still see some impacts of that in terms of limited hours of operations for some of the smaller moms and pops and even some of the nationals just getting the coverage and the customer service levels that you would typically see or expect from them. So, I think that in addition to some of the other challenges that Biff mentioned with the supply chain and the construction continues to still be an issue with restaurants. Yes, you're absolutely correct. Another question that came in, Biff, is how is the current inflation affecting the restaurant's real estate environment? One of the ways in the past, most landlords wanted annual rent increases. This is normal and most landlords had a percentage that they wanted it to increase, something like 3% or 3.5% per year. And with this inflation, some landlords are taking a new approach now and they not only want a percentage, they also want it either to be a percentage increase or the increase in CPI, the consumer price index. Because if the consumer price index goes up 8% and they're only getting a 3% increase, they'll lose the ground and their income to cost of living has gone down. So, I'm seeing that on the landlord side coming into play. I'm sure there are other things but that's what comes to mind for me. Interesting, Biff. Interesting. Devin, do you have anything to add in of how the current inflation is affecting restaurants' real estate landscape? No, I think Biff kind of hit it on the head. I think the important thing and even on our side where I handle mostly landlord work is making sure that our clients are aware and educated just because a restaurant may be doing more sales than they were potentially doing before COVID in 2019. It doesn't necessarily mean that they're more profitable. A lot of the restaurants have had to increase their prices to offset the inflation, the supply chain issues and to offset all those costs to increasing labor as well. So, they may actually be doing the same amount of transactions and offsetting all of that inflation with the higher costs. So, just taking a look and making sure you're understanding how the restaurants are actually performing. I think it's important on both tenants' side and the landlord side to acknowledge that. Very good. Thank you, Devin. Now, when I was at Comic-Con on E, I got to take the tour and we did go out and we did see a location and I think this is where most of the restaurant tours are now looking for something that's more has also an outdoor environment, especially after this pandemic. So, what are some of the considerations that restaurateurs are now doing when they are selecting a new restaurant site? Stephanie, do you want to take that one? Sure. I think one of our strengths through the pandemic was the fact that we were an outdoor shopping center and we had over eight restaurant locations that had outdoor dining options and our customers certainly took advantage of that. So, I do think that that is a nice addition that we do offer and we currently have a space that's currently available, the first generation space that has the lanai built into that format and I think our ownership and developer did a really good job of understanding that that is part of the culture in Hawaii and for Tudus in some ways that as we went through COVID that we were able to truly take advantage of that and so I do think restaurant tours are looking for elements like that, especially as we look back and see COVID and the impacts of that and a customer truly felt safer dining outside rather than inside during that time frame. Yes, and I got to see that space. It's a first generation space that's vacant and it has a beautiful lanai and just the breeze coming through is just gorgeous. So, the question is for Biff, is there some considerations that restaurant tours now are thinking about before selecting their next restaurant location? I think the basics still matter and the first thing I advise or consulting with somebody is the population that they're going to draw from and so they need to look at the vehicular traffic. If it's relevant to their location, they need to look at pedestrian traffic that's relevant. They need to look at other generators of customers like Kamakana Alihi as the huge customer base which they would be drawing from that come to the center. The other thing is that we had a situation with one of our restaurants. A customer came in and he said, you know, I live on the North Shore and this restaurant was in town and he said, you know, I come here once a month for the Cheesy Gal Deluxe Hamburg. It's so good and, you know, we got all puffed up. We thought, gee, you know, we're really good and then it dawned on us that we ought to find out where our customers do come from and so we did something called a dot survey and the way we did that is we asked the customer if we could ask them a couple questions and there's a free dessert for you. And the question was before you came here, can you give us the intersection that's closest to where you were? And when you leave here, can you give us the intersection that's closest to where you're going? And so then we wrote that down and we did that with our customers and we did it with 28 restaurants and some were dinner houses and some were fast food and we discovered that over 85% of the customers come within four and a half minutes and it shocked us and so suddenly realizing the vehicular traffic, the pedestrian traffic, how much traffic is in the mall, office buildings, churches that are in that zone becomes critical. And so one of the most important things that they need to look at is the population basis and then depending on the circumstances, parking becomes real important. Oh, by the way, that guy who loved his cheesy gal deluxe hamburger, his grandmother lived too hard on the bus so that's why he came every month and the parking situation is very critical. Surveys have shown that restaurant parking, two and a half people per stall is what happens with restaurant parking. So if you have 100 seats, you do the math and if you require parking, pedestrian traffic, that's the number of parking stalls you need. And so parking could be very important and if it's insufficient, you know, or there are other ways to be very important. And accessibility is the restaurant accessible. Get off the freeway and you're there. Get off the main road and you're there. Visibility counts a lot. And then the other factor is competition. Doing what you're going to do are the other people in that zone that are doing the same thing. You're just going to be sharing the pie with them. So you want to have your individual identity in that location. But despite COVID and everything, I recommend people with a basic system like COVID and everything. And people like the shopping center, Kamakana, Ali, can provide a prospect with the number of people that order a prospect with a number of parking places and things like that. So you can get a clear picture of your potential at that location. Because the most important thing is how much sales will you do at this location? Once you have a grip on that, you can look at the grant and go, gee, this is expensive, or gee, this is really cheap. And because it's a factor of what are your sales going to be? That's what I, a lot of your sales. Good advice, Biff. Very, very solid good advice. So Devon, so what are some of the considerations you're seeing that restaurant tours are now thinking about due to what we've experienced the last two and a half years with this pandemic? And please share with us that spot that I walked through over there at Kamakana Ali. That's really prime location for any restaurant tour. Sure. I think kind of building off what Biff said about the parking. I think one of the big asks that we're seeing more and more has to do with accessibility to pick up or kind of a short-term parking. A lot of times the larger shopping centers may not be able to accommodate that reserve for specific tenants, but having access to some sort of 10 to 15 minute type of parking where customers are able to pull up and kind of run in and out to get to take out I think is a huge portion of generating additional business like Biff mentioned at looking at their overall sales. So I think that's kind of one of the bigger trends that we see coming out of pandemic is most of all the restaurants ask comes for those kinds of parking accommodations. And in terms of the availability that we have, we do have one restaurant location like you mentioned at Kamakana Ali, which is conveniently located in the grove, which is our power center that's anchored by 24-hour fitness, food land farms, also open during the pandemic as the anchor on the other side of the center. The restaurant space is about 3,500 square feet with about a thousand square foot patio that's attached to it and has direct access to our parking field, our main parking field for the shopping center. So great opportunity for anyone looking for restaurant space on the west side. We've only got a few minutes left so please I'm going to give each of you an opportunity to tell a little bit about how they can get in touch with you, some of the maybe the locations that you have maybe perfect for a restaurant and any closing remarks. So do you want to go first Stephanie? You know I think just in closing I did want to mention that that labor concern that's one thing we hear consistently from our tenants. I also wanted to share that the Hawaii restaurant card program was incredibly helpful to our restaurant chores at the center and I want to thank you for that partnership and for working that out because I know you guys brought the forefront of that and that was definitely helpful. And just the other only thing I would I would share is why Kamakana Ali'i, aside from all the wonderful things that Beth mentioned that we offer, that I would also just share that you know we have an incredible management team, we have an embedded marketing team that is here to support our tenants to work through various challenges that they have and and we're here to assist and help them strategize. We've been here you know almost six years now in this community. We know what the community wants, what the community needs and I think we are the best partner to in our ownership and just our management team to be able to create a successful opportunity for any restaurant tour at Kamakana Ali'i. Thank you Stephanie. Any closing remarks Devin before we close the show? I appreciate the opportunity to be on here and I guess the only other thing I would add is that there's a lot of great landlords out here that have the privilege of working with that that do recognize the importance of having a good balance of both local and national restaurants in all of their centers and recognize what a big draw and almost becoming the new anchors of our shopping centers that restaurants are especially coming out of of covid so there's definitely a lot of opportunities out there for people looking to expand their restaurants and again a lot of landlords out there that do value the partnership with with all of the local restaurants and the variety that they're able to provide. Thank you Devin and Bill. First thank you for having me it's been delightful and if anyone wants to get a hold of me just call Collier's International and ask for Biff and I'll be happy to talk with you about your situation and learn about what you want to do and about your situation. Other than that thank you very much. Thank you everyone thank you so much for joining me and Stephanie you are correct I was gonna say this is my last tag line um for what you restaurant card the current one that was purchased by businesses is expiring on the 30th which is this Thursday at 2 p.m so please restaurant tours it is a pure thick card I want to let restaurant tours know that everyone that is a restaurant of food service such as a bakery a coffee shop even a bar can accept this current version of the restaurant card $750,000 was purchased on this restaurant card so we still have a considerable amount still out there the difference with this is this card is is purchased by corporations and businesses so you can also put your favorite spirits on it so please everyone use that restaurant card and again this is Sharon Matsuoka the executive director of the Hawaii Restaurant Association and the Hawaii Restaurant Association is the voice of what use restaurants and food service industry thank you so much we'll see you again in two weeks thank you so much for watching think tech Hawaii if you like what we do please like us and click the subscribe button on YouTube and the follow button on Vimeo you can also follow us on Facebook Instagram Twitter and LinkedIn and donate to us at think.kawaii.com Mahalo