HK$1.8m-a-month bid for icon is too rich for some
Anna Healy Fenton
In what is thought to be a record for a Hong Kong restaurant, Sherman Tang's has bid a monthly rent of HK$1.8 million to retain the lease on the Peak Lookout for a further five years.
This almost doubles the HK$1.01 million Mr Tang reportedly paid for the previous lease five years ago.
Then, he outbid long-term tenants Cafe Deco Group for the historic building at 121 Peak Road, then called the Peak Cafe. He apparently dreamt up the bid figure of 1.01 after watching the film 101 Dalmatians.
The popular venue may be classed as an iconic tourist attraction, but some restaurateurs question Mr Tang's ability to recover his money over five years, let alone make a profit.
'I'm truly shocked by his bid,' said Cafe Deco majority shareholder Graeme Reading.
'From our calculations, we don't think he can make money. HK$1.8 million is unbelievable - he's basically bought the building, but only for five years. I'm amazed he's done this.'
The site measures 1,203 square metres, equal to approximately 12,000 useable square feet, divided into 4,000 sq ft of indoor and 8,000 of outdoor space.
By Mr Reading's calculation, Mr Tang's bid equals HK$250 per sq fit inside and HK$100 per sq ft outside.
The monthly figure of HK$1.8 million was beyond belief, said Dining Concepts managing director Sandeep Sekhri. 'I am shocked. Nowhere else in Hong Kong, not even in Lan Kwai Fong, does restaurant rent exceed HK$100 per sq ft.'
When asked to comment, Epicurean Group declined to discuss the deal, but other restaurateurs estimate the Peak Lookout's turnover at HK$4 million a month - and HK$5 million in the best months.
'There's no question Sherman Tang can make money,' said Mimosa Group chairman Richard Feldman. 'Rent usually represents 25 to 30 per cent of turnover in food and beverage. If it works out within that parameter, it doesn't matter what the rent is. What I like about this is the price was determined by the market, not the landlord.'
Cafe Deco was not among the three other, unnamed bidders this time, said Mr Reading. He was discouraged by the insistence of the landlord - the Government Property Agency - on 'highest bid wins', which favours a high offer by the incumbent, who faces no moving-in bills.
Five years ago there was bitterness and acrimony when the outgoing tenant, Cafe Deco, was forced to rip out many of the old Peak Cafe fixtures and fittings to comply with government rules that buildings must be handed back in original condition.
Mr Feldman believes Mr Tang would not have bid so much unless the numbers stacked up.
'Anyone offering that rent would have checked it made business sense,' he said. Landlords regarded an existing tenant more highly than a newcomer because the risk factor was lower.'
But commercial property expert Dick Groves said HK$1.8 million sounded like a very high rent in a volatile sector. 'Compared with selling jewellery, food is a low-margin business. If there is a downturn, turnover can drop 10 per cent. In this case the rent has nearly doubled, but you can bet they are not selling 100 per cent more food,' he said.