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NYC Restaurateurs Plead With Landlords For Rent Forgiveness And Deferment

Tyler Durden's Photo
by Tyler Durden
Tuesday, Apr 07, 2020 - 08:25 AM

Authored by Ryan Sutton, of Eater.com,

New York bars and restaurants, which reportedly laid off tens of thousands of staffers in March, are now negotiating with landlords to stave off another crisis: paying April rent.

Photo credit: Bess Adler/Eater

Real estate relief efforts are underway, including a 90-day state moratorium on evictions and a proposed tenant forgiveness bill. Nonetheless, rent payments are still due. “The reality is that many restaurants will not have the money to pay,” said Andrew Rigie, head of the New York Hospitality Alliance, a group that advocates on behalf of owners.

Some restaurants, like Simon Kim’s Cote in Flatiron, are looking to use security deposits in place of formal payments. Others are seeking rent forgiveness, a tough sell that the Boqueria tapas chain has managed to pull off in part. Still others are contemplating deferrals, a gamble that involves paying less now and more later. Following are accounts of how various NYC restaurant groups have pursued each of these three strategies:

Pursuing rent deferment

Some bars and restaurants are pursuing rent deferment. David Rosen — who runs a popular collection of Brooklyn bars, including the Breakers, and leads the Brooklyn Allied Bars and Restaurants industry group — tells Eater this week that he’s seeing fellow venues strike deals that involve paying just 25 to 50 percent of the current rent, while agreeing to pay back the remaining balance over the course of a few years.

But deferment might be the riskiest plan here, as it mimics taking a burdensome loan. “On the surface, such arrangements might seem like a real lifeline, but they aren’t sustainable beyond a month or so for most,” said Rosen. The higher rent that deferment inevitably brings can be “crippling” long term, he said, especially when “compounded with the financial complications of reopening in what is certain to be a fragile market.” Translation: If business drops off when restaurants reopen, a deferment deal can mean financial catastrophe.

Using security deposits

Simon Kim, owner at Cote, a Michelin-starred Korean barbecue spot that’s open for takeout and delivery, said he’s worked out a plan with his landlord where his security deposit gets used first.

“If you have a certain amount of cash held there, the landlord can burn it down and you can offer to rebuild the deposit over the course of the coming year,” he said. “It is not an insignificant amount of money, but it is manageable.”

Moshe Schulman — managing partner at East Village natural wine bars Kindred and Ruffian — is making the same pitch as well, but as part of a more complicated arrangement. One of his landlords agreed to a deferred payment on April rent in exchange for Kindred covering a portion of the commercial property tax. To pay for that tax obligation, which comes to about $3,000 per month, Schulman has asked for those funds to be taken out of the security deposit. He says his landlord is “considering it.”

Requesting full rent forgiveness

“Forgiveness is ideal,” said Alex Raij, owner at La Vara in Brooklyn and several other popular Spanish restaurants, citing the fact that the lost revenue “won’t come back.” Numerous other restaurants and bars contacted by Eater echoed that sentiment.

Landlords have an incentive to cut cash-strapped restaurants a break, helping ensure they eventually reopen rather than shutter amid unsustainable levels of debt. But forgiveness is a complicated pitch at the moment, as the real estate community tries to figure out whether it’ll be part of any type of rent relief or bailout. Indeed, Raij said some of her landlords were taking a “wait and see approach.”

Yann de Rochefort, who runs the growing Boqueria tapas empire, is the only restaurateur contacted by Eater who reported success in negotiating any type of forgiveness. He said he was able to avoid paying April rent “in some cases” at his seven restaurant group, while negotiations continue at other venues. The previously strong state of business notwithstanding, Rochefort wrote in an email that his pre-shutdown cash levels were “barely sufficient for two weeks’ payroll.”

Still, any sort of real rent forgiveness on a broader scale will take government action. There is state legislation in the works that would assist both tenants and landlords, but it’s not clear when (or if) it will come to pass.

Read more about those efforts here.

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