Restaurants reclassify better than any other property type. Here is why

The kitchen is not building

A commercial kitchen is a dense concentration of equipment and the systems that exist only to serve it: exhaust hoods and make-up air, dedicated gas piping, equipment power drops and quick-disconnects, walk-in coolers and freezers with their refrigeration lines, grease interceptors, floor sinks and specialty drainage, quarry tile on specialty setting beds, stainless wall panels.

Almost none of that serves the building. It serves the operation carried on inside the building, which is the test that puts it in a 5-year class.

Front of house

Decorative and pendant lighting, booth and banquette millwork, bar build-out, host stands, decorative ceilings and wall treatments, sound and paging systems, point-of-sale cabling, menu boards and interior signage.

The drive-through and the site

Quick-service restaurants carry a heavy 15-year load: drive-through lane paving, order canopies and their foundations, bollards and islands, striping, patio hardscape and pergolas, parking, landscaping and irrigation, site lighting, and monument signage foundations.

On a freestanding QSR the site frequently costs more than the building.

Franchise remodel cycles

Brand standards force interior refreshes every five to seven years. Each one generates qualified improvement property with a 15-year life and full bonus eligibility — and each one disposes of components that are still sitting on the depreciation schedule.

Running a study before a remodel establishes what the removed components cost, which is what enables a partial asset disposition election. Run it after and the evidence is in a skip.

Typical range

26% to 42% of depreciable basis. The upper end applies to full-service concepts with heavy kitchens, bars and outdoor dining; the lower end to smaller fast-casual footprints in leased shells.

Tenants as well as owners

If you paid for the build-out, it is your depreciable asset regardless of who owns the shell. Restaurant tenants with substantial build-out spend are often better candidates for a study than their landlords.