Industry
Restaurant & food service property tax consulting
Restaurant assessments usually come from one of two bad comparisons: the construction cost of a brand-specific building, or the sale price of a net-leased pad site bought for the tenant’s credit and lease term. Neither measures what the real estate is worth to the next operator, who will gut the interior. CPT values the building on second-generation terms.
Net-lease investment sales are not real estate comparables
Freestanding restaurant properties trade constantly, and the recorded prices are widely available. What those prices measure is a lease: a long term, corporate or strong franchisee credit, scheduled increases, and no landlord responsibilities. Investors are buying the income and the guarantee.
Using those sales to value the fee simple real estate imports the tenant’s credit into your assessment. In most states the standard is the value of the property unencumbered by a particular lease, which points to a different evidence set — sales of restaurant buildings conveyed vacant, and rents achieved by second-generation operators in the same trade area.
Brand-specific building, second-generation buyer
Restaurant buildings are designed around one concept. Roof lines and tower elements, drive-through lane geometry, window and order-point configuration, dining room size and layout, and interior finish are built for a specific service model, and much of it is worthless to the next occupant.
The next occupant is the relevant buyer. Conversion costs money — reworking the drive-through, replacing the kitchen line, reconfiguring seating, changing signage and façade — and that cost comes off what a buyer will pay. The shift toward off-premise ordering has also turned large dining rooms in older buildings into a liability rather than an asset, which is functional obsolescence in the ordinary sense.
Where the equipment line falls
Restaurant build-out is dense with assets that sit on the boundary between real and personal property: exhaust hoods and make-up air, walk-in coolers and freezers, grease interceptors, dedicated gas and electrical service, fire suppression over the line, booths and millwork, and point-of-sale and drive-through systems.
States classify these differently, and a walk-in assembled inside a building is the classic disputed asset. The risk in a multi-unit portfolio is systematic double assessment: the build-out capitalized into the real property value in every jurisdiction while also being reported on every personal property return.
Services that apply here
Real Estate Assessment Review & Appeal
Annual review of every assessment you carry, and appeals pursued wherever the assessor’s value exceeds fair market value.
Read more →Business Personal Property Tax Consulting & Audit Defense
A review of returns already filed to recover overpayments, plus representation when an assessor or contract auditor comes calling.
Read more →Common questions
A restaurant nearby sold far above our value. Why is it not a comparable?
Because what sold was probably a lease. Net-leased restaurant properties are priced off the tenant’s credit, the remaining term, and the rent escalations — the building is nearly incidental to the yield calculation. Two identical buildings can trade at very different prices depending on who signed the lease and for how long. If the assessment standard in your state is fee simple value of the real estate, the relevant sales are buildings conveyed without a lease in place, which typically clear at a very different level.
Are hoods, walk-in coolers, and grease interceptors real or personal property?
It depends on the state and on how the item was installed. Assembled-in-place walk-ins, exhaust hood systems, and fire suppression are commonly disputed. Grease interceptors buried in the slab usually fall to real property. Booths, millwork, point-of-sale, and drive-through electronics are usually personal. The practical concern for a multi-unit operator is consistency. If the build-out is inside the assessor’s real property value and also on your personal property return, the same asset is taxed twice, in every location, every year.
We shrank the dining room and shifted to drive-through. Does that affect value?
It can, in both directions. Excess dining area in a building designed for a dine-in service model is space that no longer earns, and a buyer prices it accordingly — that is functional obsolescence. On the other side, a well-configured drive-through with stacking capacity has become more valuable, and older buildings with a single narrow lane cannot be retrofitted cheaply. The analysis has to identify the building the market wants today and quantify the difference against what you actually own.
Tell us about your food service properties portfolio.
Send the parcel numbers or the most recent assessment notices. We will tell you whether the value is defensible.