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By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She is currently writing a book about textile artisans.
Like many New Yorkers, I cannot begin to imagine the place without a thriving restaurant culture.
This is just another respect in which the COVID-19 pandemic has hit the city hard and despite dropping COVID-19 numbers, there’s no end for the restaurant industry in sight
According to the New York Times, 9 of Every 10 Restaurants and Bars in N.Y.C. Can’t Pay Full Rent:
The ongoing travails of the industry were underscored by a survey released this week by the New York City Hospitality Alliance, which found that nearly nine out of every 10 dining establishments had not paid full rent in August and that about a third had not paid any rent.
Outdoor dining alone has not replaced any meaningful proportion of lost revenues. Yet nor will the much touted return of indoor dining at reduced capacity begin to solve the problem either. According to the NYT:
Even as the city prepares to allow indoor dining at 25 percent capacity on Sept. 30, that may not be enough to reverse the steep economic slide of one of the city’s key industries. With the lack of tourists and office workers, many restaurants, particularly in Manhattan, are on the brink of collapse, posing a big obstacle to New York’s recovery.
The 87 percent of restaurants that said they had not paid their entire August rent was an increase from the 80 percent that reported not paying all of their June rent. The survey was based on responses from 450 of the 2,500 businesses that make up the alliance’s membership.
The resumption of indoor dining at reduced capacity will allow restaurants to welcome more diners, but some owners said that would not be enough to offset the loss of outdoor dining because of cold weather or the end of the city-permitted program on Oct. 31.
We seem to have lots our way policy-wise. At the same time as the UK government has provided funds to encourage customers to dine out, New York dithers about incremental changes that would encourage continued outdoor dining:
Mayor Bill de Blasio said on Tuesday that there would be an announcement about the program in the coming days, though it was unclear if that meant an extension. “What makes sense?” he said to reporters. “What doesn’t make sense? How will that work?”
City Hall officials declined to provide any more details. Among other issues, regulations limit the types of heating devices that can be used to keep outdoor spaces warm.
The city should allow restaurants to use portable propane heaters, which are currently banned, said Andrew Rigie, the executive director of the hospitality alliance. He said heaters hooked up to natural gas lines were permitted but were expensive to install and required special permits.
With policymakers focusing on such small ball strategies, is it any winder NY restaurants are in such a state?
To be sure, the major blow comes from the disease itself, but NYC seems to be doing its best to make things worse and drive the maximum number of bars and restaurants out of business.
But the evictions crisis is not an easy problem to solve. And on solving that problem turns the question of the survival of so any bars and restaurants. Over again to the NYT:
Mr. Rigie cited several reasons that restaurants were still facing persistent financial difficulties.
Socially distanced outdoor dining brings in only a fraction of what a restaurant’s typical income might be, and many establishments were already having a hard time making a profit. Many restaurants are still trying to pay rent owed from the months when they were shut down, making it even harder to cover rent in more recent months
Federal aid through the Paycheck Protection Program, which was meant to help preserve workers’ jobs, offset some costs, but that has mostly run out. The inability of restaurants to pay rent has also dealt a severe blow to many smaller landlords, who have their own bills to pay.
“This commercial rent crisis is not going anywhere, and it’s continuing to get worse, and we need to deal with it in a thoughtful way,” Mr. Rigie said. “Otherwise, we are going to see more defaults throughout the system and more loss of our beloved restaurants and bars and fewer jobs and opportunities for New Yorkers.”
This is not just an issue driven by the greed of landlords. Many smaller landlords are themselves financially stressed and absent federal or state intervention, cannot themselves afford to provide rent relief. According to the NYT:
Whether a restaurant is able to pay rent often hinges on whether landlords and tenants can make deals. About 60 percent of the businesses that responded to the alliance’s survey said that their landlords had not waived any portion of their rent.
Jay Martin, executive director of the Community Housing Improvement Program, which represents about 4,000 landlords who own rent-stabilized apartment buildings, including buildings with commercial units, said some landlords were not waiving rent because they had exhausted their ability to give people a break.
Landlords are struggling to pay mortgages and property taxes, and their income is dependent on rents’ being paid in full.
“We’re at margins that are very thin,” he said.
I cannot even begin to sketch a solution. But I do know to do so requires much more than allowing propane space heaters for outdoor diningin New York city.
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Congress/Treasury and the Fed, with limitless capacity to create $, will not intervene until the vultures need to borrow funds to purchase the pick of the carcases.
Exactly!
But who wants to buy a local restaurant these days, anyway? No scalability, management requires a lot of close attention, and it’s a notoriously difficult market for a million reasons.
I wonder if the suits at the Fed will have the capacity to reflect on their own actions when their favorite chophouse goes under.
Agreed, but there may be many bank-owned properties available at bargain prices if the restaurants can’t service their leases, and the landlords can’t service their mortgages. What the vultures will do with them, I’m less confident.
Maybe they’ll go into social housing /s
Pandemics historically don’t last longer than about 3 years.Deep pockets firms with access to cheap financing from the banks and Treasury can buy up the real estate at deep discounts and then just wait out the pandemic. 3-5 years from now, they will be able to charge full rents.
That is basically what happened to housing in the GFC when deep pockets firms bought up lots of individual homes and then rented them out. They might be selling some of those now with property values outside of city centers rising.
NYC building codes make Byzantine regulations look like Milton Friedman wish lists. Over-regulation doesn’t even begin to describe NYC building codes.
All restaurants will be Taco Bell.
TBH, I’m not sure there’s a solution, if the solution is return to the pre-CV times.
At least in London, it’s pretty clear that it will not be the same, for a long time. Because even when CV is gone, a lot of companies found that WFH can work quite well, and saves on expensive office space (never mind Brexit, where JPM is moving 200 staff and a few hundred billions worth of assets to Frankfurt in the latest larger move). I know there was a bunch of offices going up at Canary Wharf, but I doubt they’ll have tenants – I know a few of them were already trying to change themselves from office to residential space before CV.
And all the coffee shops, Prets etc. will go the same way then. On the good side, it may, once CV is a bit behind, actually help with the coffees/pubs in smaller places outside of London. You know, it may encourage smaller towns and villages to again be a bit more than just a place one sleeps between the commutes. For example, instead of rushing for a train in the morning may stroll down the coffee shop for a cuppa, and stop at a local baker/grocer to buy something for lunch too.
Which is the best scenario. The worst one is, everyone sits at home, ordering stuff and never showing up anywhere.
To an extent, which comes up depends also on the town itself.
Where I’m at, in far out country/edge of suburbia, the places that have plenty of space and/or outdoor seating have been going gangbusters since they lifted the lockdown. Some have stopped taking online orders because they are too busy to handle them. The small ones are struggling, cutting back hours, cutting back portions, anything to survive. We are ordering out a lot more than usual just to support whatever we can, and staying away from the eat in places entirely, patio or not.
When winter hits, and it will be months of below freezing temps, it’s going to get really ugly. These politicians in the US better have their billionaire hangout spaces reserved because they are going to need them.
Speaking of Prets, they’ve closed all their outlets in Boston and almost all in Chicago.
In Boston, they had located their outlets at transportation hubs and office-heavy spots like the financial district. Maybe an extreme example of the kind of business that will be killed by all this.
The corner pizza and sandwich shops in residential neighborhoods all seem to be thriving.
An interesting detail I learned the other day: in my city in Southern California, even though bars have been closed for quite a while due to the pandemic, they have still been required to pay all their license fees and permits.. So tack that on top of having to pay rent while closed, at least in some places. This is according to a gofundme campaign that a landmark bar that has been here for 40 years has posted to try to stay afloat. As much as I believe in the idea of government improving people’s lives, they sometimes (often?) have some very poorly considered policies.
“As much as I believe in the idea of government improving people’s lives, they sometimes (often?) have some very poorly considered policies.”
This is the result of being governed by people not interested in governing, not an indictment of the idea of government being able to improve people’s lives, given a government interested in doing so.
Good point, thank you. Either not interested in governing or interested in governing but with the wrong objectives, such as trying to benefit the few over the many.
Even pre-pandemic, Manhattan had an excess of restaurants and bars, and a thinning-out was inevitable, as had already happened with over-priced retail storefronts. Hyper high end locations, such as Madison Avenue on the Upper East Side and Bleecker St. on Greenwich Village already had deep recession-levels of vacancies.
Manhattan, after vacuuming up and re-establishing constellations of capital from around the world, now faces a terrible reckoning. The other boroughs, which are currently doing much better, are nevertheless dependent on the commercial tax base in Manhhatan, and will likely follow suit…
I hate to agree but having lived there for 20 years I do. A friend is listing his boutique condo downtown for a bit higher than his cost from 14 years ago. If he’s even lifted at the ask that’s a pretty lousy return – given all the inflation in common charges and taxes, you could see serious price chops despite all the free money from the Fed. The wealthy need to come back or NYC is going back to the 70s.
Going back to the 70s when NYC was the cultural capital of the US, the cradle of a number of musical genres (hip hop, salsa, funk), home to artists of all kinds…are you really optimistic that this can be achieved?
If I had a time machine, I would set it to NYC 1974, hit up all the music performances, plays, and art shows I could.
In Kansas City, new restaurants are opening, believe it or not. A small Italian joint is taking over a space formerly occupied by a coffee shop. There will be some tables inside and more outside, but takeout is the the centerpiece of the game plan. A takeout chicken place is moving into a long-abandoned KFC building. Meanwhile, a ramen place quietly closed up for good. All of our bars seem to be doing well. This is just in my small area of town, and not representative of the entire metro area, though.
As I understand it, the owners of commercial properties have a strong incentive not to lower rents. If owners reduce rents, then lenders will lower the appraised value of the property when it is time to mortgage the property or use it as security for a loan. Hence, better a high rent and an empty storefront than a lower rent with a sustainable tenant.
This does help explain how New York has managed to maintain such a low infection and test positivity rate, even with the virus taking off in other parts of the country.
I went and had a look at the NYC info site for tourists on what is and isn’t open and what capacity limits and restrictions apply. It makes for sobering reading, especially when you consider they’ve been doing this for around six months now. (There is plenty of kicking and screaming here when we do it for just a few weeks). It’s clear that the ongoing cost of all this is extremely high, justified only by the fact that the alternative is worse. New Yorkers probably understand this better than most after what they went through.
It makes me wonder what things are like in other parts of the country. I am regularly on video calls for work with people from parts of North America, and without exception they are always working from home. I don’t think I’ve seen anyone from that part of the world in an office for many months now. Even the idea of it is strange to them – if we are joining from a conference room then we are regarded with equal parts envy and alarm. It certainly seems like the tech sector (or at least the part of it that I’m exposed to) has gone fully virtual and has no plans to change. Clearly that’s not possible for all sectors, but for all the news we hear about reopening it’s clear that it’s a heavily qualified kind of reopening at best.
NYC will learn the joys of the food truck.
Because restaurants long ago lost the ability to afford rent in real America and became food trucks.
Welcome to the third world!
“I cannot even begin to sketch a solution”
I can: emulate Australia, NZ, Vietnam, Hong Kong, Korea, etc etc etc and get case counts down to where it is SAFE to dine indoors. Otherwise indoor dining is stupidity
New Zealand’s lockdown completely shut every restaurant down for a month or more, and has then lurched in and out of different levels of restrictions.
There was a month or two where it seemed normalcy returned, but it didn’t last, and many restaurants bars cafes and venues on the verge there too.
Don’t worry, Grubhub has a plan. An unlimited number of virtual restaurants with images of appetizing meals and a few ghost kitchens churning out mystery meals instead. They ought to profitable soon but it will decades before they pay any tax, with that staggering mountain of losses to offset those profits. Who says you can’t fool all the people all the time?