Josh Sigel, the head of the partnership behind the new high-end Japanese restaurant and club at Salesforce Transit Center, says his plans to sell NFT-based memberships to the SHŌ club is more than just a trendy scheme designed to garner publicity.
It’s potentially a big revenue generator. At their current prices, the 3,265 club membership NFTs offered by the SHŌ Group — a limited number across each of the membership tiers, priced at $7,500, $15,000 and $300,000 — could net the venture upward of $28 million in securities-like investment. Minted on the blockchain, the nonfungible token memberships grant holders access to private areas of the club, menus and other perks.
The arrangement also sets the company up for a recurring revenue stream: It will take a 10% cut of the secondary resale value on NFT marketplace OpenSea.
The NFT memberships, officially unveiled recently at a ritzy kick-off event at the future SHŌ site, could potentially be the beginning of something big in the hospitality industry if they sell.
That’s a big if, though. While SHŌ representatives say they have seen demand for the memberships, it’s anyone’s guess as to whether they will sell out — and how the future NFT market will treat them when they come up for resale. The memberships go on sale in a limited private auction this week and a larger open-to-the-public sale in mid-to-late September.
While a perk for the rarified club members, the NFTs are also integral to the whole venture’s financial health. Sigel said a “portion” of the initial membership sales will be used to “offset” construction costs, meaning traditional investors aren’t necessary to make the project happen.
Speaking at the recent media event, Sigel said construction will likely be “one of the most expensive restaurants built West of the Mississippi in quite some time, if ever, outside of Las Vegas.” Sigel is CEO of venture management and consulting firm Lasso Ventures, formed in 2018 and used to form SHŌ Group’s earlier iteration, JSSK One LLC.
The SHŌ Group has declined to share specific cost estimates for building out the ornate 9,600-square-foot restaurant, but Sigel said they have “exponentially increased” from the $7.5 million envisioned for the restaurant at the time of its original 2019 lease (before, it seems, NFTs were a part of the equation).
The team’s lease with Salesforce Transit Center landlord Transit Joint Powers Authority (TJPA) sheds some light on the situation. According to its agreement, SHŌ Group will get a $1.2 million tenant improvement allowance to build out the space. It is eligible for an additional $500,000 in TIs when its total investment in the project reaches $17 million. They will reach that milestone if they sell about half of the NFTs made available.
As described in TJPA documents, Sigel’s team asked its landlord during Covid for lease changes to the rental rate and tenant improvement allowance, feeling that the restaurant would need more investment after the pandemic’s impact on downtown.
In an email this week Sigel said the amendments were the result of a shift to bigger ambitions for SHŌ.
“We shifted our business strategy to capitalize on the opportunities that were in front of us,” Sigel wrote. “Our single restaurant business strategy moved to a multi-channel global experiential hospitality platform focused on building communities through the creation of one-of-a-kind guest experiences across fine dining, nightlife, retail food concepts, and events.”
As part of the agreement, TJPA lowered SHŌ’s base rent, but the restaurant will be required to invest at least $17 million in its buildout, up from its earliest estimates of about $7.5 million. SHŌ also agreed to begin paying percentage rent six years earlier, and take over two of the Transit Center’s “more challenging ground-floor leasehold spaces” as described by the TJPA — a combined 4,400 square feet. The smaller space would serve as kitchen support while the other would become what the restaurant calls SHŌ Market, a fast-casual restaurant and retail market concept.
The buildout on those ground-floor spaces will be much, much tighter — under $300,000, compared to TJPA’s 2017 “pro-forma” allowance of about $1.2 million.
The hard-hat tour of the site given to reporters prior to the recent kick-off celebration highlighted a litany of potential construction headaches. A large private mezzanine will hang over the 1,100-square-foot subterranean dining level, its kitchen and 12-foot-by-3-foot Japanese-style irori grill. The kitchen will be run by Shotaro “Sho” Kamio, who operates Iyasare in Berkeley.
Staircases must be built to connect the levels. The Sky Lounge will feature large glass windows that can be moved to enclose the space for weather conditions while maximizing views.
And while at most restaurants the unseen roof is the catch-all destination for bulky equipment such HVAC systems, at SHŌ “the roof became the focal point of design,” Sigel said, because it can be seen from all the surrounding office towers.
The sunken, ovular-shaped overall site requires most kitchen equipment to be custom-built and entranceways to be reconfigured.
Right now the SHŌ is working through the permitting process and hopes to start buildout work in the next six to eight weeks and open “hopefully” by September 2023. The architect is New York-based AvroKO; a general contractor has not been publicly identified.
For a club member who buys in, the only way to leave and recoup some of that investment is via resale. The SHŌ Club’s top tier — 20 members total — are “essentially investors in what’s being handled as a Reg A security,” Sigel said, and will sit together on a board to “guide the SHŌ Club experience.”
At least initially, the club will not be selling corporate memberships — avoiding the sports-suite scenario where cost is expensed and access passed around to employees and their clients. Every NFT will need to be assigned to a named individual, which ups the potential value for the resale market.
What happens if SHŌ, the first part of a larger plan to open restaurants and clubs in several cities, ends up failing?
“We look at this as a 25-year opportunity and the investment is congruent with that,” Sigel said, describing the length of the lease — 15 years with two five-year extensions. “San Francisco does have a way of nurturing and taking care of [restaurant] concepts unlike other major cities.”
The company says it will reinvest the royalties from the resales into the private club experience.
“The restaurant itself is financially sustainable without the membership program,” Sigel said.
An indeterminate number of the restaurant’s 300 seats will be available for non-members to dine at, Sigel added. But, given its location atop Salesforce Transit Center, it will be more of a high-end destination restaurant than a walk-by offering.
If all doesn’t go right and memberships remain unsold, Sigel said Plan B is to tap into a “tremendous amount of interest from many, many accredited investors,” but he doesn’t expect it will be necessary.
“There’s a lot of interest we’ve been holding off on,” Sigel said. “We don’t need membership revenue to make this happen.”
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