THE MONKEY Bar evokes the panache of the 1930s and ’40s.

The list of must-haves for the aspiring restaurateur starts with the chef, preferably a well-known kitchen magician who is on the cutting edge of gourmet innovation. If a potential investor wants to become involved in a celebrity-driven venture, notes Kenneth A. Himmel, president and CEO of Related Urban Development, he should contact the chef directly, assemble a concept and then attempt to package it.

THE BILTMORE Room ranks among the most successful investments

Similarly, it is also crucial to have backers with a reputation for quality. Will Montero, a Boston-based real estate and construction entrepreneur, avers that this was his most important criterion. “It was definitely Jeffrey and his crew,” he says, referring to Jeffrey Mills, who launched the wildly successful Biltmore Room in New York last year. “I saw the space, I knew about the chef and, more than anything, it was the people around Jeffrey.”

Himmel began his quest to create the hottest restaurant venue in New York at the new Time Warner Center three years ago by inducing world-class figures such as Thomas Keller, the renowned chef of the French Laundry in Yountville, Calif., to anchor the center with Per Se, a $12-million shrine to the culinary arts. Joining the panoply is Jean-Georges Vongerichten, with his V Steak House, an expansion of an empire that includes restaurants such as JoJo, Vong, Jean Georges, 66 and Spice Market.

Fate Takes a Hand
Investing in restaurants was not always the formal, complicated process it is today. In 1985, Drew Nieporent, a young, ambitious, Cornell-trained foodie, was looking for investors to help him jump-start his career. At a Manhattan bus stop, he bumped into a former coworker from the restaurant 24 Fifth.

THE STRIP House

“Hey,” Nieporent asked, “know anyone who wants to invest in a restaurant?”

“I do,” replied the friend, who soon was able to come up with $50,000.

That investment, along with Nieporent’s life savings of $50,000, $50,000 from Tony Zuzula (another Cornell alumnus), a loan of $75,000 from the Small Business Administration and $25,000 from his mother (after his father turned him down), launched a career that has made Nieporent a lion in the international restaurant business.

Nieporent answered an opportunities ad in the New York Times for a space in a desolate and undiscovered part of Manhattan renting for $12 per square foot, then set about creating Montrachet. Seven weeks after its opening, the restaurant received a three-star review in the Times. “It was like winning the lottery,” Nieporent recalls, and he was on his way.

After six months in this once-forlorn space, Nieporent took over an adjoining woodworking shop and added 2,000 square feet. It went from a café seating only 40 to 60 to a 100-seat establishment. Along the way he virtually invented the neighborhood (Tribeca), propelled the career of a relatively unknown chef (David Bouley) and teamed with celebrities including Robert De Niro and Robin Williams in several other ventures. Nieporent now has 19 diverse food enterprises in his realm. Not a day goes by that someone does not pitch him a new opportunity to run a restaurant or invest in one.

Nearly 20 years after Nieporent’s debut, financing the launch of a restaurant is far more complex. Michael Whiteman, a Brooklyn-based consultant who is involved in restaurants, luxury inns, spas and other developments around the country, points out that starting a small restaurant in a suburb can run $650,000 to $700,000 and up, and in a major city the start-up costs are easily double that.

MICHAEL JORDAN'S Steak House

Despite the outlay required, the possibility of quickly reaping a generous return, perhaps 40 percent at a top-flight restaurant, as some suggest, looms large for many potential investors. Before an investor can rub elbows with a hot crowd drawn to a “scene,” however, there are other considerations: silent partners, real estate haggling, celebrity egos and sophisticated tax deliberations.

“Don’t do it,” warns Zagat, “unless you’re very smart and very experienced.” He notes that the restaurant business has the highest failure rate of any, with more than half of all new ventures failing in less than two years. The investor, he adds, should “be a good real estate person, know what’s a good lease at the right price and understand capital needs.” He has to be a savvy buyer because food is perishable. “If you buy poorly,” Zagat says, “you need a genius in the kitchen to overcome bad ingredients.” The restaurateur must also be a good PR person, a good advertiser and be good at dealing with the public.

Peter Glazier, whose restaurants include Michael Jordan’s Steak House in Grand Central Terminal in New York and Strip House locations in New York, New Jersey and Texas, likens running a restaurant to working in show business. “In fact,” he says somewhat ruefully, “every day it gets closer and closer to show business. You need a great chef, a great location, panache, music, public relations, filters on the lights, computer systems, etc.”

VALUE JUDGMENT The gastronomes among us are often intrigued by the opportunity to own or invest in our own restaurants. But the journey from gourmand to gaffer is fraught with financial peril that has laid low the plans of even the most experienced investors.

When he took over the fabled Monkey Bar restaurant in 1994, Glazier had one partner, Burton P. Resnick, the head of one of New York’s largest development and construction companies, who put up less than $1 million. Because the restaurant, with its decor evoking the 1930s and ’40s, was an instant success, Glazier was able to repay his partner in a relatively short time. But today, he acknowledges, the restaurant is making less money, which he attributes to the recession and to a diluting of the market.

A Three-Star is Born
Persistence is also crucial. When New York City shut down a bar that catered to transvestites in Chelsea, Mills, a 30-year-old Cleveland-born restaurateur, saw his opportunity. By law the premises had to be closed for two years. He finally persuaded a reluctant landlord to lease the space for what became the thriving and frantically hip Biltmore Room. With a highly regarded chef and partner, Gary Robins, in the kitchen, the well-connected owner and chef soon attracted a with-it crowd, as well as a three-star review in the New York Times. The restaurant is expected to gross more $5 million in its first year in business.

That elicits smiles from investors such as Will Montero, who took a liking to Mills when he worked in bars in Boston 10 years ago. Montero, who had professional restaurant training at Johnson and Wales College, asked early on to see Mills’ business plan for the Biltmore Room. “There’s something about Jeff,” Montero explains. “I normally wouldn’t have done it, but I gave him $35,000. I keep an eye on the books. Typically I’d expect a return in a year and a half. I think my return will be triple what I thought it would be.”
Yet another lesson for would-be restaurateurs: each deal is unique. As Nieporent forged his success, De Niro, a Montrachet fan who owned property in Tribeca, came to him with an idea for the Tribeca Grill. But Nieporent and his group had to raise $2 million and agree to a deal that called for a portion of the investment to be returned before profits. Nieporent went in for sweat equity plus salary. “We projected a return in five years,” he recalls. “Actually, we returned the money in two years.” The largest investment came in units of $200,000 from investors such as Bill Murray and Sean Penn.

An investor with the capital and the patience must also pass a credit assessment and an ethics check. In states such as New York, every investor must be listed on an application for a liquor license and be fingerprinted to rule out a criminal background. (The government can bar an investor.)

Strategy, of course, is crucial. When Himmel was flush with the success of his Grill 23 & Bar in Boston in 1983, he sought to capitalize on his winning formula and carry high-end food to the suburbs. He failed. “We didn’t belong there,” he says. “There was too much competition, and people didn’t want that kind of a check.”

In 2003, however, the well-seasoned Himmel opened the Excelsior restaurant with the grand duchess of Boston chefs, Lydia Shire, in the kitchen. It was designed by the much-lauded Adam Tihany and had a budget of $2.25 million. Finding investors proved easy. “I had a list of 10 investors to go to,” he says. Among them were friends of his neighbor in Marblehead, Mass., Peter Lynch. “The first three put up $750,000 each, and I put up an equal share.” That was it. Excelsior was lauded from Burbank to the Back Bay as Boston’s best new restaurant in 2003.