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Published 06 March 2013 12:11, Updated 07 March 2013 09:24
Dave Evans eyes Brisbane expansion from his Hugos Lounge in Sydney. Photo: Louise Kennerley
The Hugos Group will seek a sale-and-leaseback on its bar/restaurants in Sydney and Melbourne to free up cash for a move on Brisbane, and co-owner Dave Evans is using the Sydney Star casino’s arrangement with its restaurants as a benchmark for the deal he’s after in the north.
Evans, who owns Hugos Group with “best mates” Daniel Vaughan and David Corsi after last year buying out his brother Pete’s share – now famous as a judge on Channel 7’s My Kitchen Rules – says Brisbane competes with Perth as Australia’s fastest-growing dining destination.
“When a Matt Moran says he’s opening in Brisbane or a Neil Perry says he’s opening in Perth, I’ll have a look too,” says Evans, counting off a slew of “southern operators” who’ve opened in Brisbane of late including Pony, Kingsley’s, Bavarian Bier Cafe, Stokehouse and two restaurants from Moran himself.
Hugos Group, which opened the Sam Newman and Shane Warne favourite The Pantry in Melbourne’s Brighton in 1993, following up with Hugos in Sydney’s Bondi in 1996 and Kings Cross in 2000, is close to finalising a deal to open on the ground floor of 111 Eagle St, on Brisbane’s Eagle St Pier, although a couple of other CBD sites are possibilities.
The problem with expanding a restaurant empire in 2013 is that the major banks have “almost cut themselves out of the market”, according to Evans.
“When we opened Hugos Manly [in August 2008] we got a seven-year loan for the fitout. Now since the GFC, if the bank even speaks to you, they want any loan paid back in full in three years,” he says.
“On a typical $4 million fitout, you add up the principal, interest and tax and suddenly you’re repaying $2 million a year for three years. The strain on cash flow is just prohibitive.”
To fund its move into Brisbane, Hugos will sell its Melbourne and Kings Cross premises, but continue to operate them on a 20-year leaseback. Agency agreements were signed last week with City Commercial in Sydney and CBRE in Melbourne.
“We’ve got millions tied up in property going up at 5 per cent a year, whereas we back ourselves to make a 30 to 50 per cent a year return operating a bar/restaurant. The leaseback will allow us to operate more of them,” Evans says, adding that a Perth opening was on the agenda once Brisbane was established.
“We’ve structured rent increases we’re confident will work for investors, and a market review in 10 years. You don’t want market review any earlier because it can go up or down, and both the investors and we as operators want certainty.”
Evans admires the deals on fitout that Echo Entertainment did to attract restaurant operators to its revamped Star casino in Sydney.
“Some landlords still seem to think that giving you a box of concrete and drilling a few core holes in the ground is base building – ‘here, you guys do the rest’. I’m sorry but that was 10 years ago. I want my landlord to have skin in the game if he’s going to get my brand into his building.”
At Star, Evans says Echo paid for the entire fitout of its signature restaurants – which include Balla and Black by Ezard – and also pay for the staff. The operators are paid 5 per cent of turnover and 10 per cent of the profit [clarification of these arrangements were being sought from Echo].
“I’d accept one of those deals any day of the week. As an operator it’s the best deal you’ll ever get, it’s a true partnership with your landlord,” Evans says.
“It’s a benchmark to work toward and I’ve been using it in my negotiations in Brisbane,” he adds.