How Nelson Lin Plays the Real Estate Market to Beat Chain Restaurants

This week's Founder Friday is about what happens when a founder understands the market from both sides.

Nelson Lin runs Soup Leaf Hot Pot with his mom, one of Austin's earliest hot pot restaurants. He also works as director of research at Aquila Commercial, where he studies the city's real estate market up close.

That overlap has become a strategic advantage.

Nelson and his mom signed the lease for Soup Leaf in the middle of the pandemic, when almost nobody was signing restaurant leases. What they thought would be a one-year buildout turned into two anxious years, most of their savings, and a crash course in how hard it is to open a restaurant in Austin.

Then they opened to lines out the door.

Three years later, Soup Leaf is now the oldest hot pot restaurant in Austin, which sounds impossible until you understand the market. By the end of this year, Nelson expects the city could have around ten hot pot spots, including national and publicly traded chains.

The twist is that Austin's brutal buildout process did not just slow Soup Leaf down. It protected them.

While competitors were still trying to get open, Soup Leaf had time to build systems, earn regulars, understand Austin's customer, and become the local incumbent.

What founders can learn from Nelson:

• How a painful buildout can become a moat
• Why adjacent industry knowledge can give you a strategic edge
• How to read saturation before the market turns against you
• Why local brands can beat national chains when they understand the city better
• How zoning, retail supply, and commercial rents shape what gets built in Austin

Here's what Nelson shared about hot pot, moats, commercial real estate, Asian restaurants, and the Austin zoning fight behind your favorite neighborhood spots...

What's your background, and how did you end up running a hot pot restaurant in Austin?

I'm a retired child laborer from the restaurant world. When I turned the brisk age of five, I started working in the restaurant. My mom had a Chinese buffet growing up. In case you're wondering what happens to those kids who worked in Chinese restaurants, they end up in commercial real estate or in tech.

I remember when I turned 18 thinking, "I'm so excited to go to engineering school. I'll never go back to the restaurant again. I'm set." Years later, the pandemic hit. The restaurant I grew up in had to close. My mom, who was living in San Diego, was looking for something new. I had already moved to Austin from Chicago in 2020 because I missed sunlight, and Chicago didn't really have it. There's also this entrepreneurial energy, the younger-city vibe in Austin, that Chicago didn't have.

After my mom and I settled in, she really wanted to open another restaurant, specifically a hot pot one. When we signed the lease, it was the middle of the pandemic, and no one was signing leases for retail or restaurants. People thought we were crazy. We got the rent somewhat cheap, but we spent a lot on the buildout. It took us two years. We were over budget and over time. We expected a year at most. Austin is notoriously difficult for building. We assumed Texas would be easier, but Austin has its own thing going on.

We were anxious by the end because we were near the end of our bank statements and didn't know if we could make the money back. When we opened, there were lines day one. That wasn't something we were expecting.

Was the two-year buildout timeline actually a competitive advantage in Austin?

We're now the oldest hot pot restaurant in Austin, which is crazy because it's only been three years. By the end of this year there will probably be 10 hot pot restaurants. Each new one has also taken two years to build.

That initial anxiety of, "It's going to take us forever to open," is now a benefit. It gave us two years to build our systems, our reputation, our brand, and to figure out what Austin actually wanted. We're trying to serve the people of Austin the food they want, the way they want to eat it. That wouldn't have happened in a city where it's easier to build, because someone would have come in six months later and eaten our lunch.

Three or four publicly traded or national hot pot chains are coming to Austin. HaiDiLao is publicly traded. Happy Lamb is publicly traded. If they had come within the first few months, we probably wouldn't have been able to do what we've done. The two-year build essentially gave us a monopoly for one or two years. Being local and talking to people in the city beats trying to run things from a publicly traded chain headquartered in Beijing.

Has Austin's appetite for new Asian restaurant concepts changed?

As each new hot pot place opens, we've noticed the initial rush that used to come whenever a new Asian concept opened isn't there anymore. Austin has hit a saturation point. When you go from three all-you-can-eat sushi places to 14, you really saturate that market. When you go from two Korean barbecue spots to 10, you can't survive in that environment.

What's unique about the Austin restaurant consumer?

The biggest thing is that Austin loves its local concepts, even when they're not necessarily better. P. Terry's is the best burger place in town in my opinion. When In-N-Out tried to come in, I assumed they'd make some headway. They get wiped every time. If there's a P. Terry's next to an In-N-Out, the line at P. Terry's is always longer.

Local Austinites have a strong love for their brands, but the brands have to give back. You have to donate. You have to support causes that matter to the city. That's something I've always wanted to do, but growing up doing the Chinese buffet, it wasn't on the average mom-and-pop owner's mind. That's still pretty persistent in some Austin restaurants, especially Asian ones, which tend to be more isolated from the rest of the Austin community. Austinites might love their food for being cheaper or more hole-in-the-wall, but a lot of those owners don't do the outreach. Look at H-E-B. Look at P. Terry's. They target causes important to the city and build part of their brand off being local.

Why do Austin-born restaurant concepts often struggle to scale beyond Austin?

Austin is too creative for its own good. Because it's so hard to find good or affordable retail locations, a lot of historical Austin concepts are able to take risks and survive simply because they don't have real competition for that space. You can be creative and make a Ramen del Barrio here, but you can't necessarily survive like that in other cities.

I've seen that especially with Torchy's. Whenever a concept expands outside of Austin, it's not that often that they have the same success once they leave. Austinites love their concepts so much that it doesn't always translate. Outside of Whole Foods or Chuy's, there aren't many retail concepts I know of that started in Austin and sustainably crush in other cities. Maybe Uchi. CPG usually does fine, but specifically in restaurants, it's rare.

Cabo Bob's might be one that could crush anywhere they go. I just wish they'd expand. Sometimes a place does so well it doesn't feel the need to leave.

Why does Austin feel like it has less ethnic food than other major cities?

Austin is denser than Houston and Dallas, but there's a frequent complaint that it lacks ethnic food. Austin has actually done fusion incredibly well. Asian fusion is what it's known for. The Uchis of the world. But there's a new wave of more culturally adjacent concepts coming in beyond fusion.

The reason there's a lack of those is that there's a lack of cheap commercial real estate space in Austin. A large part of that is tied to zoning. For its size, Austin has probably the strictest zoning of any major city I know. Compare it to Houston, which has no zoning restrictions. You could put a school next to a strip club in Houston and people would say, "That's fine."

In Austin, zoning is pretty much entirely built for single-family homes, and it's difficult to change. Five or six years ago they tried CodeNEXT, which would have made every house duplexable, and it got shot down by 16 people who sued the city. People who could show up to city council meetings to complain.

That lack of commercial retail is why you don't have as many hole-in-the-wall mom-and-pop concepts. You need cheap real estate to take a risk on those businesses. The ones that exist either signed a really good lease a long time ago or are in more hidden areas. In Houston, you have dead malls everywhere. You can cut up the mall however you want, and a business can operate there because the rent is cheap enough. The margins are low, but the operator essentially treats the margin as their salary, which is enough for most Asian mom-and-pops to survive 20 years when publicly traded American chains go out of business.

Why is residential rent in Austin coming down while retail rent isn't?

Rent has gone up by double since we signed our lease at 99 Ranch, and it hasn't gone down. There's been a huge wave of new apartment complexes built in Austin. About 30% of all rental units have been built in the last five or six years. That's why residential rent keeps going down. You should haggle with your landlords. You should push your residential rents down.

Retail rents spiked too, but they never came down, because no one builds new retail centers. Anytime a retail center came up for sale, it would get torn down and turned into an apartment complex, maybe with ground floor retail. But the ground floor retail is expensive because it's brand new, or there isn't enough parking to support a restaurant.

Look at the map. You can only put commercial buildings on Burnet, Lamar, and downtown in North Central Austin, plus some stuff along Anderson. Outside of those corridors, everything in the city is a single-family home. So you don't have the density for a lower-cost, higher-volume business, and you don't have enough competition because it takes so long to build and there's so little cheap retail. You can't fix it unless you allow it. People are concerned about gentrification and developers making money. Yes, developers make money, but you're missing out on parts of the city by capping how much can be built everywhere else.

What about the food truck scene? Is that filling the gap?

At the end of the day, it's all supply and demand. When I was going to school in New York, we had eight food trucks serving Chinese grab-and-go food. Students are a perfect market for that. They have Julie's Noodles near UT. Those food carts exist, but they want to be near the population that demands it. You don't see them as often on 6th Street, but you'll see a bunch near UT.

What's a restaurateur's actual incentive when it comes to zoning reform?

Here lies the rub. As an incumbent, I have no incentive to increase the amount of zoning, because it prevents new competition. Soup Leaf probably has the best location in town for a hot pot restaurant. Everyone else is at least 10 or 20 minutes north of us, so we get a monopoly on people coming from downtown. They're not going to drive to Jollyville for hot pot when they can go to the 99 Ranch Plaza.

As a developer though, there's more money to be made if we build more. What I do is just explain to people how it works. Supply and demand. There's often an emotional aspect when it comes to housing that makes these conversations difficult, but at the end of the day, if you allow developers to build more, it brings down rent.

I don't like when people complain and don't do anything. There's a knowledge gap in how the market actually works. If you don't work in it, it's hard to bridge that distance. I like to be an educator. I share the information and let people make their own judgments. But if you want more, better, cheaper, more diverse restaurant concepts, you need to increase the amount of commercial zoning and make it cheaper to build.

The reason commercial landlords are so wealthy is because there's a prevention mechanism: you can't build enough to adapt, which makes things really expensive. You have more money coming in but the same supply, so you've arbitrarily increased the value of commercially zoned land. Residential is artificially deflated because of all the single-family homes.

Right now there is new retail development, but it's all in Georgetown and Kyle. Within the city of Austin, there's almost no new major retail development. Cedar Park and Kyle have a huge amount of it. If you live in Cedar Park, in the next five to 10 years you're going to get some pretty cool new ethnic food, much faster than other parts of the Austin MSA.

Tell us about the new restaurant concept you're opening.

We're opening a new restaurant in a month or so. The benefit of being on both sides, as a restaurateur and someone working in commercial real estate, is the ability to get information about competitors before they come into the space. That's part of why I started at Aquila Commercial, where I'm director of research. Through that I talk to other landlords and brokers in town and learn who just signed a lease. That's how I know there are three more hot pot restaurants under construction in Austin right now. I know where they are, their target demo, and what they're building. We can get ahead of them to take market share before they open, or position other competitors near them so they fight each other for market share instead of fighting us.

That's what led us to realize hot pot is too inundated of a market in Austin right now. Funny enough, one of the things people tell us when they're getting hot pot, in true Austin fashion, is, "I have to cook my own food? That's crazy." That got us thinking. We have the ingredients. Why don't we cook the food ourselves?

That led to a new concept: a soup and salad restaurant and bakery, Asian fusion inspired. Growing up, we went to a restaurant called Souplantation in San Diego. For Austin, Houston, and Dallas people, that was Sweet Tomatoes or Souper Salad. Soup, salad, baked goods. We're modernizing the concept while keeping the classics. The vast majority of those restaurants were wiped out during the pandemic, and we miss them. We already have the ingredients. It's a lot of the same stuff. Why don't we just make the food ahead of time?

We're building out in Northwest Austin, at Anderson Mill and 183. We're calling it Mama Lin's, after my mom. Soup, salad, and baked goods first, with some extra special goodies we haven't shown the public yet.

What advice do you have for people trying to build a restaurant or retail business in Austin?

You need more money than you think and more time than you think to build in Austin. But once you do build, you have such a strong incumbency that first mover advantage is really useful. I wouldn't copy another concept and open in the same neighborhood they're in. You can maybe do that in Houston or Dallas, where there's more available commercial land and the cost to build is lower. If I'm building a concept, I want to be as far away from my nearest competitors as I can while the market still being good.

If you want to see real change, that takes a lot more effort. Zoning laws are something you vote on, something you have to convince the general public about. There's no way to win this on the local level, because the only people who vote are people who live and own homes. The vast majority of voters are upper class. They own their own real estate. They feel invested in the city. Building out new housing to make it affordable, or new restaurant concepts, benefits the people who haven't moved to Austin yet. If you have kids, it benefits them. Those people can't vote.

If you don't change things, in 20 years prices double again and you see what happened in San Francisco. The vast majority of people either live with family or leave the city. There's no way for them to really exist there because development was prevented for so long.

If you're going to exist within the system, take advantage of the benefits: be a first mover, build where there's not a lot of competition, and over-budget your time and money for how long it's actually going to take.

How can the Austin community help?

Nelson is especially interested in meeting:

• Asian restaurateurs looking for community, visibility, or support
• Restaurant owners thinking about expansion
• Founders trying to find the right retail or restaurant space
• Landlords or building owners with spaces that could fit local operators
• Anyone looking to lease, buy, sell, or better understand Austin commercial real estate

Outside of the restaurant world, Nelson is also a research director at Aquila Commercial, where he tracks the Austin market and helps clients understand what is happening across local real estate.

Where can people learn more?

Email Nelson at lin@aquilacommercial.com, follow Soup Leaf Hot Pot on Instagram, and follow Mama Lin's on Instagram.