The New York City restaurant industry faces an existential threat worse than from any previous catastrophe. Eateries will survive the coronavirus nightmare — but salvation will more likely come out of good-faith bargaining between desperate owners and beleaguered landlords than from various government-relief proposals now being urged by restaurant-business advocates.
The crisis is acute. Some 25,000 sit-down dining venues stand dark. Apart from the heartbreaking suspension of the Big Apple’s essential noshing and socializing scene, upward of 320,000 local jobs are gone. Owners lost more than $2 billion in revenue in four weeks.
Takeout and delivery have failed to help much. Operators are scrambling to sell off t-shirts and expensive vintage wine in a desperate bid to stay afloat. There’s no way to know when they’ll be able to reopen or how many — even including the Big Apple’s most iconic names — will survive.
Esteemed chefs and owners including Tom Colicchio, Daniel Boulud and Danny Meyer, as well as the New York Hospitality Alliance, correctly argue that the $2 trillion federal stimulus bill included only crumbs for restaurants. Its “payroll protection plan” offers loans that are convertible to grants — but that may be untenable for owners, who’d have to keep employees on the books without knowing when they’ll reopen.
Advocates want relief in various forms, such as mandating insurance coverage for policies that don’t include pandemics and several plausible cash-infusion strategies.
They’re well-meant and important, but the more enduring solution will likely involve the real-estate free market — even though, at the moment, the very idea of a “free market’’ is in limbo.
Lease payments are a restaurant’s most daunting fixed cost (usually around 10 percent of the total). Although often less than for operating costs such as labor, food and supplies, it’s the toughest nut to crack because it’s impossible to change. A shuttered eatery can lay off its whole staff and spend nothing on food but is still on the hook for monthly rent.
How can owners such as Havana Central’s Jeremy Merrin, who pays $1 million a year for his Times Square location, afford that while having zero revenue?
He can’t. But then, the sort-of good news is that isn’t a matter of charity for landlords to restructure restaurant-tenant leases. They have to pay mortgages, insurance and taxes. So they simply can’t afford to evict a restaurant tenant even after Gov. Andrew Cuomo’s three-month moratorium on evictions is over.
This is as true for the family owners of a three-story tenement in Greenpoint as it is for a publicly traded real-estate giant in Midtown Manhattan.
Why? Because, simply, who would replace the restaurant when the entire US economy is frozen in place? A shoe store? They’re closed, too. It’s true that landlords have lots of debt, but count on their lenders, too, to come to accommodations even if not contractually obligated to.
Short-term fixes might help restaurants in the very short term, yet rent amelioration will matter much more when they’re able to reopen. Whether current or future restaurants can afford to occupy their spaces will determine their futures.
But any legal mandates to forgive current rents require fast action by the state Legislature and the governor, and they have larger matters on their plates.
The hopeful news is that chaotic but likely productive dialogues between restaurateurs and landlords are under way. The right path requires cooperation, not confrontation. Eatery owners and property owners are in it together and need to work in everyone’s mutual best interest.
Progress is being made. As reported by Eater.com, the Boqueria Spanish tapas chain has already secured temporary rent waivers at many of its locations, thanks to constructive talks with landlords.
And more landlords will follow suit, or at least make some concessions. It’s better for the property owner than having more dark storefronts — for which there’s no tax break despite widespread misconceptions.
Landlords and office tenants cooperated magnificently after 9/11. The same thing can happen again for restaurants — but only if all parties take the long-term view. Otherwise, the eateries will give up for good and leave their landlords in worse shape than they are.