NYC Restaurants Prepare for COVID-19 Recovery

Aug 5

NYC Restaurants Grapple With Decrease Density, Lower Revenue, And New Conversations With Landlords and Insurance Companies As They Recover From COVID-19

Part of the allure of New York City is undeniably the culinary scene. From sardine-packed, off-the-beaten-path restaurants to overflowing bars with no last call, New York’s food and drink scene have always been defined by its high-octane energy.

Density has always been a bellwether of success in the restaurant industry; the larger the crowd, the better the vibe and the more magnetic it is. At least in our pre-COVID19 world. Today, as we slowly inch closer to reopening New York, restaurants and bars will need to abandon the old model, cutting capacity by up to 50%, providing more elbow space for each patron by redesigning their floor plans and possibly changing furniture, and cooking up new ways to incentivize to wary diners afraid to catch the virus.

The average restaurant rent in Manhattan and Brooklyn costs over $120-per-square-foot. With less foot traffic and revenue, restaurants are in a position to fail without help. If you are a New York City restaurant grappling with this need to decrease density, step one to ensure survival is discussing lease terms and potential workarounds with your Landlord.

Over the past month, we’ve had numerous conversations with restaurants in New York City and helped them discuss strategies to find solutions with their Landlord. Here is some general guidance to help prepare you for this conversation, and we are more than happy to be part of these conversations as your unwavering advocate and partner in your long term success.

How Do I Communicate With My Landlord?

Landlords are humans, too—yes, they have to work within their cash flow confines also, but they understand this pandemic as much as anyone else and value communication and cooperation. We’ve seen the benefit of collaboration between Landlord and tenant, especially with NYC restaurant owners who want to protect the foot traffic and atmosphere their restaurants create. The bottom line is it’s better for the Landlord from a financial and an optics standpoint to have a neighborhood restaurant or bar that the community rallies around than to have a vacant space for the next year, so opening a dialogue is a win-win for all parties.

Do You Recommend Specific Solutions for Paying Rent?

Your lease may have specific provisions for circumstantial deferred rent or rent abatement during times of material business interruption or revenue loss. Many companies have business interruption insurance for this reason, but to date, this Coronavirus pandemic is not being covered as such by most insurance carriers. If you do have these provisions in your lease, we can help you speak to your Landlord about exercising these rights. If you don’t, we’re here to help structure a solution and have seen an incredible amount of collaboration between landlords and tenants in the past few weeks; here are some rent payment solutions we’ve seen working:

(a) deferring 100% of rent for 3 months to be paid back over the remaining lease term

(b) deferring 50% of rent for the next 6 months to be paid back over the remaining lease term

(d) Reverse of the standard percentage lease

We’ve also helped restaurant tenants with 2 years or less left on their lease renew now: why now?

(a) free rent in a new lease will start immediately, solving for short term cash needs

(b) real estate taxes reset to $0 in a new lease, solving for short term cash needs

(d) ability to negotiate a “percentage” lease, meaning use your sales projections and current market conditions to structure a rent schedule that has you pay a proportionate percentage of rent based on revenue projections and no rent if your sales sit below a certain amount

If your timeline permits, we strongly recommend considering signing a new longer term lease with your existing landlord for the above reasons; this solution solves for short term cash needs for tenants and longer term vacancy fears for landlords. Restaurants are not only cornerstones for our communities in a broader sense, but they are quite literally cornerstones for the blocks they sit on; in other words, Landlords want to keep you, and each Landlord is different and has different portfolios and levels of solvency, which will determine their willingness to accept certain solutions. We’re prepared to work with you, to think creatively and innovatively, and to facilitate these conversations with your Landlord in a cooperative way. Please reach out to us if we can help.

Should I talk To An Attorney?

Before you plan and communicate with your Landlord, you want to make sure you understand your rights within your lease and your rights as a tenant given the multiple Executive Orders and policy changes around rent payments and Landlord / Tenant relationships. Given the challenging financial times, we’ve partnered with reputable Golenbock Eiseman Assor Bell & Peskoe LLP (GEABP), to do a top-level review of your lease and answer initial questions you have at no cost to you.

Does My Business Insurance Cover COVID-19?

We are working closely with lawyer John Wilkofsky and his partner John Houghtaling, who, on behalf of Chef Thomas Keller, is suing his insurer over business interruption claims related to the COVID-19 pandemic. Keller’s business interruption claim was turned down because the insurer said there were “no dangerous conditions” at his restaurants. They intended to create a legal precedent, so other businesses mandated to close shop due to COVID-19 could claim their business interruption coverage.

To answer questions around Business Interruption Insurance, we have partnered with insurance coverage and property damage firm Wilkofsky, Friedman, Karel & Commins (WFKC) who has been in communication with the New York City Mayor’s office, New York Governor’s office, and the federal government and has proposed language for an Executive Order relating to “property damage” caused by the virus’s contamination of surfaces, which prompted an unsafe working environment and subsequent office closure orders.

New York’s culinary scene is the heartbeat and backbone of our state, employing more than 860,000 New Yorkers at more than 50,000 locations with an estimated $51.6 billion in sales. We must help these small businesses survive not just during the New York Pause, but the months and years that follow. Please don’t hesitate to reach out to us if we can assist you in any way.

Ashlee McConnell