Market Soars for Top Restaurant Locales Despite Slow Economy

By DEBORAH BELGUM
Staff Reporter

Shallom Berkman barely flinched when he heard the sale price for a tiny restaurant on one of Beverly Hills' more popular streets.

He and his wife, Jilla, who also is his business partner, paid $650,000 in January for the compact 2,500-square-foot space that used to house Chadwick, the organic food restaurant started by Ben Ford, son of actor Harrison Ford. That's two-and-a-half times the price Ford paid for the same space without the liquor license.

"Someone told me it was available, and I took it instantly," said Berkman, co-owner of the Urth Caffe, which has one location on Melrose Avenue and soon will have a second location on South Beverly Drive.

The restaurant market in L.A.'s higher end areas remains hot as investors, disenchanted with the stock market, look for places to park their money while demand for good locations is greater than ever.

Restaurant spaces that would have sold for $175,000 to $200,000 a few years ago in West Hollywood, Melrose Avenue, Brentwood and Santa Monica are going for double or triple that amount.

"I've been in the business 22 years and I've never seen prices go up as dramatically as they have in the last three years, especially on the Westside," said Jennie Smith, a restaurant real estate broker with Alpert-Siegel & Associates, who attributes supply and demand to the price rise.

"I thought prices would come down with the economy being off," added Darlene Heskamp, a restaurant real estate broker with Beitler Commercial Realty Services. "But in certain areas, the demand is more than the supply."

In some ways, the price boom seems to defy logic. The restaurant industry has been limping along in the softening economy as consumers tighten their belts. International tourists have been staying at home. Statewide, restaurant sales inched up 3 percent in 2002, below earlier projections by the California Restaurant Association of a 5 percent increase.

In addition, workers' compensation rates in California have mushroomed more than doubling in the last four years the state minimum wage rate has climbed to $6.75 an hour, and energy costs have inched upward.

But none of that has stopped investors from buying into parts of L.A. where customers are more accustomed to eating out.

Alain Giraud, the French chef who recently opened Bastide on Melrose Place, had a list of must-have items for his new restaurant that is backed financially by famed advertising director Joe Pytka. The place had to have a patio, an intimate ambience, a good location and an existing liquor license.

Giraud and Pytka wound up paying $600,000 for a 2,100-square-foot restaurant space that had housed Manhattan Wonton Co. in West Hollywood. "The price was a little bit of an issue," Giraud said. "But we felt it was an opportunity for us."

An existing liquor license is key to many deals. That's because liquor licenses in Los Angeles County, which can only be bought from a previous owner, are difficult to get and expensive.

Art Rodriguez, a liquor license expeditor in Pasadena, said he has seen licenses soar in the last five months to $30,000 from $20,000. A beer and wine license, which can be purchased directly from the state, costs only $576.

Pushing that price rise are investors searching for ways to make money. "People are going for bricks and mortar because the stock market hasn't built public confidence," said Jeff King, owner of King Seafood Co., which operates the Water Grill in downtown L.A. and 11 other restaurants. "At least with a restaurant you get a free meal once in a while."

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