By Nancy Gaines
Photographs by Emily Knudsen

How’s this for a contradiction? It’s never been harder to get money to start a restaurant in Boston, yet there have never been so many restaurants opening their doors.

The anomaly is easily explained. From an investment standpoint, it’s not exactly the best of times, but big-name restaurateurs have the credit and track records to extend to new locales. And although it may be the worst of times for budding culinary entrepreneurs, a few have managed to break out on their own, albeit only after leveraging everything from their life savings to their souls. They’ve done so in the face of stiffening competition—the local industry added 2,000 seats in the last two years—and amid some of the most spectacular collapses in long memory, from Aujourd’hui to Rocca. Those scares, plus a sluggish recovery, have balky banks clutching their purse strings, and would-be investors, sellers and landlords squeezing newcomers hard.

“Restaurants are a pariah in this economy,” says Charlie Perkins, president of the Boston Restaurant Group, Inc., which orchestrates restaurant deals. “It’s terrible out there. I’ve sold about 600 restaurants, and I’ve never seen such demanding landlords—they want guarantees of up to five years’ rent—and banks that want 40 to 50 percent down, or 100 percent collateralization.”

This tough climate isn’t stopping eager restaurateurs. Four significant entries opened this spring on Liberty Wharf, where Jimmy’s Harborside used to roost. Roger Berkowitz hosts Legal Harborside, a 20,000-square-foot mother of all Legal Sea Foods. Then comes another from the Jerry Remy sports-bar franchise, and an entry from Dallas, the high-end steak house Del Frisco’s. The fourth is Temazcal Tequila Cantina from big-name chef Todd Hall, and a fifth spot aims to be filled later this year.

With new restaurant openings, it’s the rule that established players dominate the field. Michael Schlow of Radius, Via Matta et al, opened Tico this spring, while Rialto’s Jody Adams is launching Trade at Atlantic Wharf. Uptown, industry giants and celebrity chefs Lydia Shire and Jasper White, plus nightlife mogul Patrick Lyons, last summer unveiled their $9-million creation, Towne Stove and Spirits, directly opposite Lyons’s brand new Back Bay Social Club.

By Perkins’ count, for every 10 restaurants that recently closed, 10 more opened. Red Lantern, a 9000-square-foot Asian place, is slated to open this month on Stanhope Street under Randy Greenstein and Ed and Joe Kane, who own Tosca in Hingham, the Estate and other nightspots. Up in Downtown Crossing we’ll see 49 Social, replacing Ivy. Garrett Harker of Eastern Standard recruited chef Jeremy Sewall and shellfish breeder Skip Bennett to found Island Creek Oyster Bar in Kenmore Square. Harker partnered with the development team of the Hotel Commonwealth, backed by Boston University, but in a past life, he teamed up with Barbara Lynch at No. 9 Park and B&G (as in Barbara and Garrett) Oysters.

“There’s not even a real group of players,” says Harker of today’s restaurant financing field. “So there’s a lot of courting, schmoozing and shaking hands going on,” the better to lure investors. “Then, most find a reason to say no.”

As much as cautious attitudes toward cash can stifle inventiveness, there always will be the small gems—often in less expensive, outlying neighborhoods—that become next year’s hot property. Think Somerville’s Bergamot and Journeyman, or Merengue in Roxbury. Jason Bond of Bondir in Cambridge, another tiny jewel, said his restaurant came to fruition on a relative shoestring. He used his savings and a bank loan, handling the construction work himself. Even though this was his first solo venture, Bond, 40, had a superlative work history (No. 9 Park, B&G Oysters, the Butcher Shop, executive chef at Beacon Hill Hotel & Bistro), which he said the bank examined closely.

There are basically four ways to bankroll a restaurant: a loan, private investors, seller-financing or self-financing. Time was, an aspiring restaurateur could open shop for about $125,000. Time was, banks smiled on such ventures. The late Jack Sidell, who ran U.S. Trust in the 1970s and ’80s, gave a leg up to places such as Biba, Charley’s, Davio’s, Hamersley’s, Jasper’s and Olives.

“There isn’t anybody out there now like my dad,” says Kathy Sidell Trustman, owner of the four Met bars and restaurants, and whose sister, Stephanie Sokolove, owns Stephanie’s on Newbury and Stephi’s on Tremont. Perhaps coming closest would be Ken Himmel, financier and developer of Copley Place and New York’s Time Warner Center, who’s had a hand in starting Boston restaurants for 30 years, from Grill 23 to Bistro du Midi. The late K. Dun Gifford, an early promoter of healthy eating, invested in several local eateries, including (with Himmel) Harvard Square’s Harvest. There are other players in the game, of course. In the ’90s, billionaire hedge fund manager Jim Pallotta bankrolled Todd English until they had a falling out, and helped Radius, Via Matta and Ming Tsai’s Blue Ginger. His sisters now operate Nebo in the North End. Then there’s radio mogul Richie Balsbaugh, who (with Pallotta) helped start Saint in 2002.

Even for heavy hitters like these, restaurants can be a chancy game. Between 1990 and 2006, average opening costs doubled to reach about $500,000. Blame rising costs of liquor licenses and health care, lower profit margins and higher rents. Still, it wasn’t so long ago that, “All you needed was a two-star chef and five attorneys with 100 grand each to invest,” says Perkins. Michael Staub, whose Group M Inc. in Cambridge creates business plans for restaurant buyers, estimates that today, “it’ll run about $750,000.” That includes purchase and renovation costs (the latter run about $250 per square foot). Then there are soft costs like inventory, insurance and publicity, which easily run up a tab of more than a million dollars.

For track record holders like the ones fueling the current growth spurt, there’s little need to dial for dollars. Less experienced restaurateurs have to cobble together deals, often with too many, not too few, backers. “Having 10 or 12 guys who all have a piece of you can be investor hell,” says one restaurateur who didn’t want his name attached to that thought.

David D’Alessandro, former chairman of John Hancock, who purchased Toscano on Charles Street nearly five years ago for his son, Andrew, minces no words. “Anyone with the God-given ability to eat thinks they know how to run a restaurant,” says D’Alessandro, who, no surprise, could self-finance. If you bring in investors, “be ready for a Faustian bargain. Most investors are just looking for a right to interfere.” (Andrew D’Alessandro says dad is a “hands-off” angel.)

Dancing with the devil, however, is the only way to go for most people who want to get into the business. “Sure, if you’re a Lyons, a Schlow, an Adams,” says Perkins, “getting money’s not difficult. But for startups, for mom-and-pop businesses, financing is a real toothache right now. You need a very strong backer, a killer business plan, a celebrity chef.”

According to a Cornell University study, nationwide about 27 percent of new restaurants fail fast, so closings are expected. But some hotspots-turned-cold are surprises. The South End’s Banq, an estimated $2-million venture, went belly-up in the fall of 2009 only to reappear as Ginger Park. With celebrity chef Patricia Yeo at the helm, it still only lasted about a year. Aujourd’hui, often named the best restaurant in the city, closed shop in the Four Seasons in 2009, saying the numbers just didn’t work in this economy. After months of looking for a space to hang his toque, its chef, William Kovel, is set to open Catalyst in Kendall Square this summer.

Perhaps most notable is the demise of Rocca, opened in 2007 in the South End under the venerable aegis of Michela Larson’s Sapphire Restaurant Group. Despite Top Chef stand-out Tiffani Faison winning accolades for its food, Rocca closed at the end of last year, reportedly because it couldn’t cover costs. Says Perkins, “If it can happen to Michela,” the fabled force behind Rialto, Noir and Blu, “what does that say about anyone else?”

But these failures aren’t really shocking in light of the challenge new restaurants face in their first year. An industry standard holds that a purchase price should be one-third of sales. Confusing the issue is that sales, based on the previous owner, might markedly change under a new proprietor.

If success were to be predicted, someone like Jason Santos might fit Perkins’ bill. Santos, 35, was chef at Gargoyles on the Square in Somerville when he made it to the finals of FOX’s Hell’s Kitchen last summer. “Even before the show ended, I wanted to open my own place,” he says. “I got a lot of ‘offers’ when I was on TV, but most of them weren’t for real.”

A few months later, Santos was approached by a friend of a friend who liked his cooking and said he would put up money for him to open a restaurant. “I didn’t give it a lot of weight,” says Santos. “But I had some money and my family had some money, and I started looking at places ’til I saw one I wanted. I told him about it, and asked, ‘Are you serious?’”

The investor put up $300,000 for the acquisition and buildout of what will be Blue Inc. on Broad Street. “He probably would have put in more if I needed it,” says Santos. “It was all too good to be true, it happened so seamlessly.” 

On average, local restaurants sport about 100 seats, but Blue Inc. isn’t going to be so ambitious (see “Blue World Order,” page 28). “I won’t retire on a 50-seat restaurant,” says Santos, “but I can live comfortably. A lot of Boston people open giant restaurants and fail. I prefer to have a small one that’s always packed.”

Perkins, who is currently selling about 25 restaurants in metro Boston, with prices ranging from $150,000 for a fast-food restaurant in Allston to $775,000 for a more refined South End space, says that a purchase price in, say, Brookline, might be one-third of sales, while the cost in Boston could be as high as one-half. That’s because a liquor license is worth at least $225,000. Industry axioms peg rent at about 6-8 percent of sales. Of the properties on Perkins’ list, rents run from about $35,000 to $100,000.

“There are no formulas,” says Perkins, after rattling off a spate of them, including variables of food versus beverage profit margins. “Every business needs to be considered on its own.” Banks are making loans, says Debbie Lewis, owner of 29 Newbury. “But they’re not making stupid loans like they used to. They want some skin in the game,” she explains, using the industry argot for restaurateurs putting up their own resources. That skin can run as high as 100 percent collateral, to fetch an interest rate of about 5-10 percent. Even so, says Lewis, “Most investors don’t get out whole.” But, says Saint owner Brian Lesser, “There’s something to be said for potential investors being able to look across the table at someone and see the level of commitment they have to their project.”

Teaming up with private investors is much like a marriage: probably half of the relationships go sour. Two of the more explosive splits were Ken Himmel with Lydia Shire and Todd English with Jim Pallotta. In 2006, Shire sued Himmel, a longtime backer, for age discrimination after he fired her from Excelsior. The case was settled out of court, and Shire said part of the agreement was that she not discuss it. The same year, Pallotta and English split the child, namely Figs, to resolve a dispute. Five years later, no one’s talking details, but restaurant wisdom holds that English considered Pallotta heavy-handed and intrusive, and Pallotta thought English was overextended. Pallotta got Figs in Wellesley; English kept the Charlestown and Beacon Hill locations.

When it comes to opening a restaurant, “You have to bet on the people,” says Harker, whose forays have been wildly successful. “Not the concept, not the location. Kenmore Square? Whew! That was hard.” Right now, Harker is putting his money on Alexis Gelburd-Kimler, general manager of Aquitaine in the South End, who’s currently hunting for financing for a new restaurant. Over the past 10 months, she’s used her days off to pin down a 100-seat spot in Cambridge and a “very experienced” chef.

“I can’t stress enough the importance of using the restaurant community in the city,” says Gelburd-Kimler, 31. “Asking questions, turning over every rock, going to the next person who leads you to another person. The whole process is an amazing learning curve.”

She adds, “And if it doesn’t work out this year, it will next year.”