Fast-growing Buffalo Wild Wings, which is aggressively looking for space to convert, is considering opening restaurants in former non-restaurant spaces, a practice some observers advise against.

When it comes to growth-oriented restaurant companies, the answer is less about nobility than economics. "Our preference would always be to build a freestanding, prototype store," acknowledges Raising Cane's Chief Development Officer Brad Sanders.

But for the past two years the chicken-tender chain has begun converting existing restaurants to the fast-feeder's format. And it's not necessarily out of an abiding concern for all things green. Given the severe economic downturn, there are simply too many good deals to pass up.

"If brand 'XYZ' is struggling and we've targeted that area for expansion, we will evaluate [the units] to see if they match our site criteria. If they do, then we target them to acquire," explains Sanders, describing the 80-unit, Baton Rouge, La.-based chain's recession-based real estate strategy.

The supply of failed units is growing while construction of ground-ups lags because of the credit crunch, says financial adviser and former restaurant executive Jim Parish. "There will be more supply of restaurants to be converted and less supply of ground-up opportunities," he declares.

Port Washington, N.Y.-based NPD Group says industry growth fell 0.1 percent in 2008, largely on the weakness of independents (down 0.8 percent). Chains expanded by less than 1 percent. In short, net closings nearly equaled net openings. Growth trends will continue to spiral down to 0.3 percent this year, Barclay Capital analyst Jeffrey Bernstein predicts.

Sure it would sound noble if operators' actions led to less stuff in landfills and smaller carbon footprints. But stemming waste or trimming energy consumption hasn't been the motivating factor for conversions. More often than not, they are simply a less expensive way to grow.

Franchisees of Zoes Kitchen, an in-line fast-casual eatery, are looking for failed independents that include walk-ins and hoods in decent shape.

Nine of those openings were conversions, eight of them former Don Pablo's units, says Associate General Counsel Matt Brokl, who arranged the acquisition and oversaw the conversions. The deal offered Buffalo Wild Wings the chance to assume leases and convert the spaces at considerable savings.

In the case of a Cincinnati unit, which replaced a nearby unit, the company spent $1.4 million rehabbing it. That sounds like a lot until you learn the total investment of a ground-up Buffalo Wild Wings is $2 million.

As at Raising Cane's, conversions are a "key component" of the company's real estate strategy, Brokl says.

And it's not only looking at restaurant sites. The eager-to-expand chain has identified retail outlets lacking the infrastructure—HVAC, electrical and plumbing—that a restaurant requires. "It's the first time we've looked at [these] opportunities," he admits, conceding the Minneapolis-based company has yet to devise a conversion model for nonrestaurant space.

"I think they're going to be surprised once they get in," offers industry veteran and former Ruth's Chris CEO Bill Hyde, now an investor in several Dallas-area restaurants. And not in a good way, he adds, citing steep costs associated with adding mechanicals, electrical, plumbing, as well as meeting Americans with Disabilities Act

Apple-Metro, a 32-unit Applebee's franchise, converted a shuttered seafood restaurant in Manhattan into a three story casual-dining restaurant, said to be the highest grossing outpost in the system.

Zane Tankel, CEO of Apple-Metro, which operates 32 franchised Applebee's in and around New York City, once converted a suburban bank only to discover he had to remove an underground vault, driving up the project's cost. Don Fox, COO of the 357-unit, Jacksonville, Fla.-based Firehouse Subs, recalls a franchisee who also ended up exceeding budget converting a bank. "The bank conversion was more expensive than expected," he says, adding that existing inline space is generally more expensive to convert when it's not a restaurant.

Even the cost of converting a shuttered restaurant to your brand can be high, recalls former Houston's CFO Brad Saltz, now managing partner for SS&G Financial Services in Cincinnati. "[Houston's] did a lot of conversions and, in all honesty, I don't think it ever saved us any money," he says. "Say there was a restaurant there. You gut it, and end up with four walls, a roof and a foundation. So maybe that saves you $200,000. On a $4 million build-out, you improve ROI by what, half-a-point?"

But the attraction remains, particularly at a time when capacity is slowly shrinking. "The recession this past year has had the most negative impact on the small chains and independents, and full-service restaurants that were performing poorly prior to the economic downturn," says Greg Starzynski, director of product development-foodservice at NPD Group.

If the cost of converting a restaurant like this former Backyard Burger to a Raising Cane's is less than 20 percent of a group-up, the 80-unit chains opt for a new building.

"Having a walk-in cooler is a nice operational luxury," agrees Fox of Firehouse Subs. "So where they exist, we encourage franchisees to keep them in place."

At Raising Cane's, the kitchen itself drives the layout. "Most of the time we take a conversion down to the studs because we want the operations flow to be as close as possible to the prototype. We're not just taking down signs, painting the place and calling it a Raising Cane's," Sanders explains.

Neither is 281-unit, Jackson, Miss.-based McAlister's Deli, though layouts of the fast-casual concept are flexible, according to CEO Phil Friedman. "If we have to move the configuration of dining room and use the current electrical, plumbing and facilities, then we are willing to do it. Out kitchen layouts are relatively easy to operate. We have that advantage. Other concepts may have a different situation," he says.

Firehouse Subs is happy to find a restaurant property with a walk-in cooler in place. This unit is being converted from a former Tin Star.

Last fall, Tankel jumped at the chance to convert a steakhouse in Port Chester, N.Y. The reason: The project would cost only $800,000. "That's pretty inexpensive and was the real motivation for doing it," he says.

For restaurant analyst Bernstein, conversions can't come soon enough. "Overall capacity growth remains a significant issue, with unit growth (i.e. supply) well above sales growth (i.e. demand) for the second consecutive year," he wrote in a January report.

Switching one restaurant for another may turn out to be the answer for the industry—and the environment.

MORE: Audio Q&A: The Trouble with Restaurant Conversions