Does Benihana have sufficient information to base cost estimates on converting an existing building to a Benihana Restaurant?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
You should be aware that we have limited experience in converting an existing building to a BENIHANA Restaurant. Historically, whenever establishing a company-owned BENIHANA Restaurant, we have built from "ground-up" and as a result we do not have sufficient information upon which to base our cost estimate for conversion of an existing facility to a BENIHANA Restaurant. Because conversion costs are influenced by the age, condition, composition and former use of the structure, such costs can differ greatly from building to building.
You should be aware that we have limited experience with the Concession Model franchised BENIHANA Restaurant. As of the date of this disclosure document, construction has begun and advanced only on one such BENIHANA Restaurant; thus, our cost estimates (of $176,000 to $415,000) for the construction of, or conversion to, a Concession Model BENIHANA Restaurant are based on very limited information. Both construction and conversion costs are influenced by the age, condition, composition, and any former use of the premises, and such costs can vary greatly by location. Thus, you must investigate independently the local market conditions before making any decision to proceed with a Franchise Agreement for a Concession Model BENIHANA Restaurant.
The typical BENIHANA Restaurant is composed of a building having an area of approximately 6,000-8,000 square feet situated on approximately 1−1/2 acres of land, located in a restaurant row or commercial area with residential areas in close proximity. A BENIHANA Restaurant may be either a stand-alone unit, part of a commercial retail center, or located in an office building, hotel, or other commercial facility. The estimate of $2,500,000 to $4,500,000 is for the design and construction of a typical freestanding restaurant building and improvements. The cost of purchasing real estate is not included in the Real Estate Improvements estimate and varies significantly from location to location, It is estimated that the land purchased for a typical restaurant building will cost from $1,400,000 to $2,000,000.
Source: Item 7 — ESTIMATED INITIAL INVESTMENT (FDD pages 21–28)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, Benihana has limited experience in converting existing buildings into Benihana restaurants. Historically, the company has built from the ground up, and therefore does not have sufficient information to base cost estimates for converting an existing facility. The FDD does provide cost estimates for the construction of, or conversion to, a Concession Model Benihana Restaurant, which are based on very limited information, between $176,000 and $415,000.
Conversion costs are influenced by factors such as the age, condition, composition, and former use of the structure, leading to significant variations from building to building. For a typical Benihana Restaurant, which is composed of a building having an area of approximately 6,000-8,000 square feet situated on approximately 1−1/2 acres of land, the estimate of $2,500,000 to $4,500,000 is for the design and construction of a typical freestanding restaurant building and improvements. The cost of purchasing real estate is not included in the Real Estate Improvements estimate and varies significantly from location to location, It is estimated that the land purchased for a typical restaurant building will cost from $1,400,000 to $2,000,000.
For a prospective franchisee, this means that estimating conversion costs will require independent investigation and due diligence. Given the variability, franchisees should not rely solely on Benihana's estimates, especially for conversions. It is essential to thoroughly assess the specific building and local market conditions to develop a realistic budget. Franchisees should consult with experienced contractors and real estate professionals to obtain accurate cost projections.
Furthermore, the FDD notes that for a Concession Model Benihana Restaurant, the construction or conversion costs are based on very limited information, as construction has only begun and advanced on one such Benihana Restaurant as of the date of the disclosure document. This highlights the importance of conducting thorough due diligence and seeking expert advice to accurately estimate the costs associated with converting an existing building into a Benihana Restaurant.