Key Terms in Restaurant Real Estate You Should Know

06.5.23 | Business Planning

Even within the broader scope of commercial real estate, the restaurant space is a world of its own. 

If you’re planning on buying a restaurant, selling one, or getting into the franchise game, you’ll want to familiarize yourself with some of the language and terminology before you head to the market. 

We’ll keep things fairly high level in this list. That said, if you’re looking for personalized guidance on your restaurant real estate goals, we’ve got industry-specific expertise to help. Whether you’ve got burning questions or are ready to make your move, drop us a line. Contact us

Due Diligence

In real estate terms, due diligence refers to the process of researching, investigating, and analyzing a business before you buy it.  Essentially, going over the details with a fine tooth comb before committing to an investment.

When it comes to restaurants, there’s a lot to cover during this step, and it’s one of the reasons that commercial real estate transactions can take much longer than buying or selling a homeEven if you’re an experienced investor, taking on due diligence is best with the guiding eye of a restaurant real estate agent. 

Franchise 

A franchise is a business model in which the owner grants the rights to operate a business using its established brand, systems, and processes to an independent operator. 

While a common pathway to restaurant ownership, franchises are fairly different from the independent model – i.e. starting your own place from the ground up. That said, they come with a ton of advantages and can be a great way for emerging restaurateurs to break into the industry


Interested in purchasing a franchise restaurant? You’ll find some helpful insights in these blog posts. 


Franchisor

In the case of franchises, a franchisor refers to an owner that is responsible for granting franchise licenses and other top-level duties. They’re responsible for things like developing and implementing operational systems, menu innovations, marketing, training, and providing support and resources for franchisees. 

A Franchisor could be a stand-alone company or a larger conglomerate of brands and restaurants. 

Mixed-Use Property

A mixed-use property is a piece of commercial real estate that is developed for multiple-use scenarios. Nine times out of ten, this looks like a business space with a separate residential area. 

In Ontario, mixed-use properties are fairly common and they provide a unique degree of convenience for owners and tenants alike. One of the most common examples is a street-facing restaurant with a separate apartment on top. 

Want to know more about buying a restaurant with an attached apartment? Click here to read our blog post on the topic

Net Operating Income

Net Operating Income (NOI) is an important calculation that determines the profitability of an income-generating business, in this case – restaurants. 

A restaurant’s NOI is worked out by subtracting operating expenses like property taxes, insurance, utilities, and maintenance costs (among many other things), from its total operating revenue. For potential buyers of an existing business, NOI is a useful indicator of how it performs financially.   


When it comes to restaurant real estate, location is a crucial detail in setting up a successful investment. Check out these blog posts to learn more. 


TMI

Short for taxes, maintenance, and insurance, TMI is a common example of one of these additional recurring expenses. Much like how condo fees or HOA dues apply to residential real estate transactions, TMI covers a wide range of property-related costs taken on by the landlord. 

TMI may be built into your lease, or it could be a separate cost altogether. If you’re searching for real estate to bring your restaurant vision to life, or are a commercial landlord looking to attract tenants, it’s important to understand how TMI impacts the total lease amount. 

Your Dedicated Expert

While these terms are ‘must knows’ for anyone looking to open, buy, or sell a restaurant, this list is really just the tip of the iceberg when it comes to restaurant real estate as a whole. The differences between residential and commercial real estate are endless, and in the restaurant space, things get even more nuanced.  

Whatever your goals may look like, your best bet is to work with an experienced industry professional who knows the restaurant space inside and out – like Carve Real Estate. As your dedicated concierge, we’ll guide you through the process of buying or selling your next business. 

Are you looking to open your first restaurant, expand your existing business, or sell? Regardless of your goals, we can help! Send us an email or give us a ring at 416-618-0054 to get started.