Investing in College Bars

[Mephistopheles]

One of the main 4-5 college dive bars at the place I went to undergrad is for sale, liquor license included. From 10+ years of experience as a consumer frequenting the area, I know the bar is a big hit. Assuming campus life returns to normal, it will thrive without a doubt. 

 

Has anyone here invested in bars? Any suggestions on how to learn about them? 

[Gregmal]

One word....LIABILITY

[JRM]

Either you manage the joint yourself or expect to be robbed blind.  From booze disappearing, tips and cover charge cash gone missing, you name it.  A close friend of mine was hired to manage a bar in a college town, and this was his experience.  When he confronted the bouncer about pocketing cash, he was laughed at.  

[Mephistopheles]

@GregmalSo I did some digging. Liability insurance is like 50k/year. (I'm a doctor so am well aware of liability). I guess if premium cost is priced in then it's fine.

 

@JRM Good points regarding stealing. I agree that manager is important. I work less than part time so I can for sure make it work. 

 

 

[Castanza]

50 minutes ago, Gregmal said:

One word....LIABILITY

Bingo

 

4 minutes ago, Mephistopheles said:

@GregmalSo I did some digging. Liability insurance is like 50k/year. (I'm a doctor so am well aware of liability). I guess if premium cost is priced in then it's fine.

 

@JRM Good points regarding stealing. I agree that manager is important. I work less than part time so I can for sure make it work. 

 

 

Ask Mr. Cuban what owning a college bar is like. your always one underage topless girl away from having it closed down.  

[Gregmal]

Just in general, the ones I know of that do well, are owner/operator/family run. Its also a great semi retirement "gig"/investment. But if its hands off....definitely not a great risk/reward for you. 

[dwy000]

Don't drink there yourself.  Ever.

[boilermaker75]

I have lived in a college town 45 out of the last 50 years. These college bars all come and go. The only one that hasn't is Harry's Chocolate Shop,

 

https://www.harryschocolateshop.com

 

Which I believe has been locally owned and operated.

 

 

[Morgan]

I went to party college and every summer most of the bars/clubs would close and change owners or names for the new year. Only two were mainstays and survived over my years of school. One of the mainstays was still in business a number of years after I graduated, but half of it had been converted into an arcade (which was packed when I was there). 
 

I couldn’t imagine owning a bar myself to be honest. All kinds of HR issues between bouncers and waitresses and other issues. What if a bouncer beats some kid half to death? Theft from every angle from employees and customers. Fights in the bar. It’s so easy for a bartender to give a free drink out even if you are there but on the other side of the room. Lastly, I didn’t particularly enjoy the bars and clubs when I was in college so now I wouldn’t really want to be in them every night and being around all that BS. Owning a classy jazz bar on the other hand might be nice (maybe). 
 

Are college bars profitable over a 3-5-10 year span? It seems like the build out for a basic bar would be fairly expensive.

 

It seems like a lot of owners want a place to be the “big man” and party and show off to the girls. If that’s what your goal is, then it would likely work well for as long as you can keep it going. 
 

What kind of moat can you have with a college bar? Location and the lowest price possible? College students have zero loyalty to any specific bar. 

 

As far as I know, bars aren’t particularly scalable. Restaurant/bar yes, but bar only? I’m not sure. 
 

 

I should add, my investing has been in apartment buildings so I’m used to doing lots of renovations at the beginning, renting it up, then not spending much time or energy there (within reason) and moving on to the next project.

[Mephistopheles]

Thanks for the replies. I passed on the deal.

 

1) The terms were bad,

 

I learned that the seller owns the real estate and he was refusing to part with it and wanted to charge onerous rent. There is nothing special about the bar except for the location, which is absolute prime for the area. However, it seemed the seller wanted to get out of the business yet retain all the economics via absurdly high rent.

 

2) the owner is known to be an asshole, and his broker wasn't pleasant to deal with either

 

I requested financials and was sent the tax filings for 3 years. The broker (when I requested the financials) tried to convince me that the sales are artificially low since the bar only operated between 9pm-2am, whereas it has the potential to open at 11am - 2am. 

 

Have you ever seen a college dive bar that doesn't sell food that can profitably operate opening at 11am? lol

[Morgan]

4 hours ago, Mephistopheles said:

Thanks for the replies. I passed on the deal.

 

1) The terms were bad,

 

I learned that the seller owns the real estate and he was refusing to part with it and wanted to charge onerous rent. There is nothing special about the bar except for the location, which is absolute prime for the area. However, it seemed the seller wanted to get out of the business yet retain all the economics via absurdly high rent.

 

2) the owner is known to be an asshole, and his broker wasn't pleasant to deal with either

 

I requested financials and was sent the tax filings for 3 years. The broker (when I requested the financials) tried to convince me that the sales are artificially low since the bar only operated between 9pm-2am, whereas it has the potential to open at 11am - 2am. 

 

Have you ever seen a college dive bar that doesn't sell food that can profitably operate opening at 11am? lol

Wow. Definitely sounds like bad deal as you stated. Good luck to that guy selling it.  
 

I’ve talked to a few restaurant owners locally and they said you need to own the property to be successful long term. Any economic success you have will be taken by the landlord in rent increases. 

100% up selling the establishment is classic too. “The sales are artificially low.” Lol. Come on. If the bar could be profitable in the morning the current owner would have done it himself. As a side note, misrepresenting rent rolls in apartment buildings is very common in offering memorandums as well. Recently I saw one saying NOI was 800k and my quick analysis showed a 400k NOI. They simply didn’t include 400k of expenses. It was ridiculous. 

 

 

PS - Perhaps I was too harsh in my previous reply, as lots of bars have been successful for long periods of time so maybe this one could be too. Bar ownership just isn’t for me. 

Edited July 28, 2021 by Morgan

[LounginMKL]

"Anthony Bourdain in his former TV show “No Reservations” did a profile of old school restaurants in one episode on “Lost Manhattan” and pointed out that the old school restaurants that are left own their own buildings.  They are able to stay “old school” in the restaurant business only because they are their own landlords.  If they had just been tenants, they would have been priced out of business in Manhattan long ago. "

 

https://25iq.com/2013/06/12/wholesale-transfer-pricing-and-the-free-parking-business-model/

[lnofeisone]

33 minutes ago, LounginMKL said:

"Anthony Bourdain in his former TV show “No Reservations” did a profile of old school restaurants in one episode on “Lost Manhattan” and pointed out that the old school restaurants that are left own their own buildings.  They are able to stay “old school” in the restaurant business only because they are their own landlords.  If they had just been tenants, they would have been priced out of business in Manhattan long ago. "

 

https://25iq.com/2013/06/12/wholesale-transfer-pricing-and-the-free-parking-business-model/

This sounds right. Either you own your own space or the local economy doesn't permit draconian rent raises.

 

For undergrad I went to school upstate NY where economy was slowly deteriorating and real estate was/is abundant. Terrible bars but they remain open today because landlords can't raise prices. I just pulled up Google reviews and people today comment on sticky floors in one bar I went to. Funny enough, when I was there 20+ years ago, the floors were also sticky.

 

For grad school, I went to a town that was growing rapidly. While I was there, the 3 bars I frequented the most have changed/evolved. I think one of them had 2 changes of ownership while I was there. All 3 were packed in the evenings and on the weekends. 

 

As far as the revenue between 11am-2am...seems very far fetched. In my experience, college town bars with dining space convert to lunch spots during the day but I can't imagine that being terribly profitable.