The Power Landlords Have Over Restaurants Right Now

Where a restaurant is located — the city, the neighborhood, the block, even the building — can determine its fate. There are the obvious ways: A restaurant in a buzzy, hip neighborhood with tons of visitors or tourists is likely to pull in more business than one, say, in a neighborhood with just locals, no matter how loyal. A restaurant with a large, sprawling dining room can pack in more diners and tables than a small one, theoretically doing more business.

But no matter the size of a restaurant or its neighborhood, one of the most significant costs any restaurant has is the very space it is housed in. And while the pandemic rages on, landlords are still collecting rent.

We brought together Tanay Warerkar of Eater NY, James Hansen of Eater London, and Mona Holmes of Eater LA for our Eater Talks event series, to discuss the — very powerful, yet often less visible — role of landlords and rent in restaurants’ survival right now. Below are lightly edited excerpts from their conversation, moderated by Eater cities director Missy Frederick, as well as a full video recording of the talk.

No matter how business ebbs and flows, rent is a fixed cost.

Tanay Warerkar, Eater NY: “The most recent alarming stat that we had in September, based on a Hospitality Alliance survey of more than 150 restaurants, was that nearly 90 percent of restaurants in the city weren’t able to pay full rent, and it’s getting increasingly worse every month. A stat within that survey: Nearly 40 percent weren’t able to pay any rent, at all. I think most restaurant owners would agree that rent is one of the biggest concerns right now... Even with the changes with outdoor dining, fixed costs don’t really change for restaurant owners.

With the restaurant closures over the last few months, the top reason would always be that owners just weren’t able to negotiate a favorable new lease or an agreement to keep going forward.”

Rent relief that only postpones rent isn’t much relief at all.

Warerkar: “Here in New York, it’s not that [they’re concerned about eviction]; you do have an eviction moratorium in place that keeps on getting pushed back, so people won’t be evicted. But it doesn’t take away the problem of back rent. So that’s really the biggest concern that owners want to be addressed. They might be in a position to pay for rent in February of next year, but that doesn’t mean it would cancel all the rent from the months before. So they’re really looking for rent cancelation at this point. There has been some legislation to that affect; there was legislation introduced earlier in the summer at the state level, but that has sort of stalled... So without cancelling a lot of the back rent, they’re not really going to get real help.”

Mona Holmes, Eater LA: “I spoke to a downtown LA restaurant whose landlord is basically like, ‘I don’t really care, I’m not lowering the rent, and this is the way that it’s gonna to be. You need to figure out a way to do this, or you’ve got to get out.’ And it’s not just that they have to get out; if they have a lease and they break that lease, they’re on the hook for that money. So it’s not necessarily so easy.”

Without much legislation, each restaurant owner is at the whim of their landlord.

Holmes: “Government hasn’t really dived into any significant rent relief proposals, from the local to statewide. It’s been completely stalled. And even though eviction moratoriums are the norm, I can’t tell you how many emails or messages I receive from restaurants that are finding their landlords to be unbendable. The only relief that commercial restaurant tenants were given was three months to pay missed rent, towards the beginning of the pandemic. So they’re kind of on their own.

Landlords are operating a business, they have to figure out a way to make this work... I’m seeing everything from the worst-case scenario to really great ones, where landlords have reduced rent by half or more. It really does depend on the landlord, it depends on the business, and it depends on the location in the city too.”

James Hansen, Eater London: “There is a huge spectrum of landlords lowering rent or not lowering rent at all. In the absence of overarching rent relief legislation, this is always going to be the case: It’s gonna come down to the individual transactional relationship between each individual tenant and their landlord. So this kind of personal disparity is always going to be there.”

Landlords are often small business owners themselves, so many are trying to get creative and collaborate with tenants.

Warerkar: “From the landlord’s perspective, this isn’t really an even landlord story. There are a ton of small landlords in the city who have fixed costs and taxes to pay as well. So there’s also currently legislation going through the NYC City Council that would postpone tax payments and offer some sort of incentive for landlords so they can work with their tenants.”

Holmes: “I can’t imagine any landlord that wants to shove out a long-term tenant. The alternative is putting it up for lease, finding a new tenant that’s got a concept or something that can make it in that space, have a fairly good name, give them a few months or even a year to build out the space, and hope that it’s gonna work — because they wouldn’t want to do that again. I am hearing from brokers that landlords are amenable. The trend is that they have to work it out [with current tenants].

Some landlords are utilizing brokers to negotiate new ideas on how to make this work during COVID. So there’s subleasing, there’s rent abatement, they can utilize security deposits applied towards rent. There’s even an option like the Airbnb of kitchens, Get Air Kitchens (there are a couple of businesses out there like this right now) where, for example, one broker told me about a bakery that only needed a kitchen from 2:00 in the morning until 6:00, when this other restaurant [in the space] wasn’t open. So they were able to navigate something that was fully workable because didn’t have to handle all of the rent. In previous years, all of this talk, all of these ideas, were forbidden, just not even remotely a possibility — and all of a sudden, I’ve noticed that.”

But they also may not treat every tenant equally, accelerating gentrification and influencing the face of dining in the city.

Holmes: “My colleague wrote a story on Eater LA [in which] it appears, or at least this restaurant is alleging, that a larger restaurant group wanted to move into the same building, right next door, to a similar restaurant — they both serve poke. And the way that the restaurant alleges the landlord is acting, trying to push out the smaller business to bring in a larger one, appears pretty unethical. Though I think that is the exception...”

Hansen: “Landlords [in London] right now can’t evict tenants; there’s a lease forfeiture moratorium that has been extended to the end of the year. But a proviso is that the rent arrears has to be connected to loss of revenue from coronavirus. So it’s not affecting evictions that are being carried out for other reasons.

So in the course of the pandemic, two businesses — Nour Cash and Carry, which is a longstanding community food shop in Brixton in South London, and the Lone Fisherman, which is a Caribbean food stall in Tooting Market in South London — were both threatened with eviction notices and were not covered by these protections... They were both cases of quite powerful market managers and landlords seeking to change the complexion of their real estate, in terms of the types of people that are allowed to have businesses there.

In London, you also have larger landlords that own quite large swaths of a given area, and you’re seeing disparities between the landlord and tenants in those scenarios — tenants who may be on the same street, doing the same kind of food, but are being treated very differently. Shaftesbury, which is a very powerful London landlord which owns large amounts of Soho and London’s Chinatown, has been in recent years encouraging quite Instagrammable restaurant concepts to open, in a very deliberate move to appeal to an affluent Chinese student population — which is fine, they can do that if they want to. But where this shakes out in the pandemic is they have hundreds of tenants in Chinatown, all of which have very different needs, very different demographics, very different space sizes, capacities, and operations. So when there’s no legislation and all these individual relationship playing out, tenants are seeing disparities — one tenant is getting a 50 percent rent reduction, and one tenant is being told they can’t reduce the rent at all.

So you can see an environment developing where some of the tenants are some of Shaftesbury’s prodigal sons of recent years and some of them are Chinatown’s longer-term businesses. And if you have disparities along those lines in rent reductions, you have the ask the question: What is the end game for the landlord here beyond collecting rent?”

Watch the entire panel conversation: