Trading Places

Houston's hot restaurant scene involves not just new restaurants starting up and old ones closing, but restaurants changing hands as well. In that form of enterprise, one of the major players is Charles V. Miller, of Charles V. Miller and Associates [2918 Crest Park, (281)597-8400]. He has brokered or located sites for a large number of establishments.

Miller first became conversant with the Houston restaurant scene in the early 1970s in the course of operating two businesses that supplied tablecloths and napkins to the reigning dining establishments of the time. The industrial linen business was a rough scene several decades ago, with competitors sabotaging washing machines with battery acid, and other nasty little tricks. He survived and even prospered, using a novel twist on the usual business at the time.

"I was the first to supply linens in colors other than white," Miller explains.

Following that career, Miller became a quail rancher using his Uvalde-area property as a base. He and his partner, Nancy Dierker, a Houston caterer who once supplied desserts to the fledgling Tony's restaurant, provided fresh quail to the Randalls supermarket chain and found a new market among Houston restaurants.

"I've been a real estate broker for 33 years," Miller reveals. "Restaurants are a relatively recent sideline."

Current projects involve the sale of five active restaurants at prices from "$300,000 to $3,000,000."

Given the go-go restaurant scene, why would someone want to sell a successful one? Miller has a surprising answer.

"Several of my clients can't cope with their staffing requirements. One, in particular, is being sold because the owner wants to spend more time with the family and can't get enough qualified people to work at the restaurant. They are selling in order to downsize to a more manageable level of business." In other words, they are too busy to capitalize on the success they have. This is a truly old-fashioned Houston boom-time dilemma. Others are selling for more traditional reasons.

"Whenever you are looking to buy or sell a restaurant, you have to look at the lease," Miller observes. Very few restaurants own their own real estate.

"People used to be wary of restaurants in strip centers," he states, "but now in Houston you rarely avoid a restaurant because it is in one." In fact, stand-alone restaurants are often regarded, within the trade, as locations that are a sort of Bermuda Triangle for restaurant investor dollars. Strip centers usually are built and owned by real estate speculators who have little interest in who leases the property apart from their ability to meet the monthly payments.

"The lease is the key. The owners have a property, and if that property is vacant, they are losing money on mortgage payments every month. Can you have a paying tenant in there in one month or six months? That can affect the price of the lease."

Despite the thriving economy swirling through Houston, the economics of the restaurant business still have not caught up to the Through the Looking Glass quality of much contemporary economic calculation. Dot-com corporations can have a market valuation of their stock in the rarefied air occupied by sums such as a hundred billion dollars with nary a dime of profit on their balance sheets and no intention of paying a penny of dividends on a share of stock. The investor is supposed to be supremely happy owning a portion of a company with a significant market share of some market that, given the explosive nature of contemporary technology, may be very transitory. Or perhaps the stock is valuable because the company, down the long and winding capitalist road, will, God willing and if the creek don't rise, make money. Restaurants are still valued on the money they do make. So reassuring for the troglodyte capitalists among us.

When asked about the multiples of earnings that go into calculating the value of a restaurant, Miller stated "three to five" times. In many businesses, that would be three to five times the total cash flow of the company. The restaurant Miller is offering for $3 million has, he says, an annual profit of $600,000. In other words, the restaurant is selling for five times its current pretax profit, not five times its gross.

Let's compare that to That business has yet to earn its first dime, much less its first $600,000 (the stock market term for the yield of profit sharing on its stock is a poetic "nil"). On October 31 it closed with a market capitalization value of its outstanding stock of $13,300,417,000. For those who are numerically challenged, that is 13 billion, 300 million, 417 thousand dollars.

That could buy every resident of the United States about $4,000 worth of steaks, shakes and fries. Maybe even a few paperback copies of their favorite author's books.

The Houston Press, of course, would still be free for the taking.