Hibernate Or Fight On: Restaurants, Landlords Tussle Over Winter Strategy
Bill Goodwin owns restaurants in Cambridge’s biotechnology district and downtown Boston, two areas where foot traffic dried up once the pandemic hit. The Asgard in Central Square and The Kinsale in Boston shut down in March, but Goodwin reopened them to few customers.
“We have large operations and we need to do ‘X’ amount of business,” Goodwin said. “Some small mom-and-pop operations can get away with ‘Y,’ but for us, we have a lot of expenses when we open our doors.”
The Asgard and The Kinsale are now hibernating through the winter, after Goodwin, the chief operating officer of Classic Restaurant Concepts, was able to arrange rent agreements with landlords Synergy and Brookfield. Goodwin declined to speak on his rent agreements specifically, and Synergy and Brookfield didn’t respond to inquiries.
“It’s awkward as hell,” Goodwin said. “You’d think you’d be able to just kind of take a break, but all I can think about is getting back to work and getting back to business.”
Restaurants in Cambridge and Boston hibernating for the winter are making a costly, calculated decision, betting on a coronavirus vaccine and warmer weather to bring diners back and regulations down. More than 50 restaurants in the Boston area have permanently closed since the March shutdowns, according to Boston.com, and many others see hibernation as their only chance to avoid the same fate.
“Anyone who hibernates a restaurant is making a reasonable assumption that conditions will improve,” Boston Urban Hospitality co-owner Coombs said. “You’re making a guess on six months from now, when there’s no way to know.”
Landlords reached by Bisnow either declined to comment or released statements pledging to support their restaurants. Rent forgiveness, abatement or deferrals are the exception rather than the rule, said Coombs, whose company owns four Boston-area restaurants.
Coombs reopened three of his restaurants, dbar, Deuxave, and Boston Chops in South End, but said Boston Chops in Downtown Crossing has been closed since March’s initial shutdowns because of the severe slowdown in local foot traffic from surrounding office buildings. He said he doesn’t know when he will be able to reopen the Downtown Crossing Boston Chops, but none of his restaurants are officially hibernating.
Restaurant operators said the choice to hibernate comes down to whether landlords give them rent abatements, deferrals and reductions. Baseline costs including taxes, utilities and rent could be easier to endure while closed when the business doesn’t have to pay staff or operating costs.
Coombs offered a hypothetical rent reduction agreement, in which a restaurant’s rent is $25K a month. If the cost of operating the space is $17K a month, a landlord could reduce the tenant’s rent by the $8K difference during the hibernation period, or the holding costs for the real estate.
Coombs said the decision to hibernate is neighborhood-specific.
“Restaurants by Fenway Park, by TD Garden, restaurants in Kendall Square, I would hibernate that restaurant until the spring,” he said. “Probably until April.”
Grand Tour chef and owner Michael Serpa opened the new Back Bay restaurant in late January, two months before the widespread pandemic shutdowns, and reopened briefly in the spring with funds from the Paycheck Protection Program before deciding to temporarily close again in June. Serpa said Grand Tour is eating a cost upward of $20K a month without rent relief.
“That restaurant only operates if we’re packed,” Serpa said, because of Grand Tour’s close quarters, which make social distancing impossible. “If you can’t do high-volume, there’s zero chance to do that.”
Serpa, who also operates Atlantico in South End and Select Oyster Bar in Back Bay, said among other costs to consider are coronavirus testing, which costs $2K for staff. If a staff member tests positive, it costs the restaurant $10K for shutting down on a Wednesday or Thursday night.
“More than half the time we were open, it was a challenge because of COVID,” Serpa said. “We decided to say, ‘Hey, let’s just take the ‘L’ and look at our financial losses.’”
Serpa said Atlantico and Select Oyster Bar will attempt to remain open through the winter, partially operating with staff from Grand Tour.
Arthur Goldberg, a managing partner at law firm Nathanson & Goldberg LLP, represents restaurant landlords and said landlords have tried to make deals with restaurants, “but they have to protect themselves, too.”
Landlords need to cover mortgage payments, he said, and they don’t have confidence that the tenant will reopen, even if a deal is struck.
“[Hibernation] is just a shortcut phrase to say we’re closing, we’re not paying anybody, we’re coming back later,” Goldberg said. “Obviously, the landlord doesn’t want empty space … there aren’t a lot of new restaurants opening … You think they can come back in six months, or when the summer hits, but the tenant has to work with the landlord.”
James Rudolph, an attorney who represents restaurants and sits on the Massachusetts Restaurant Association Board, said being able to sign hibernation agreement is “the luck of the draw” for the few restaurants able to enter the arrangements.
“Some landlords … might be more inclined to give rent abatements … other landlords may be thinly capitalized … I've seen both extremes,” said Rudolph, a managing partner at Rudolph Friedmann LLP. “It really depends on how well-financed your landlord is — if they can survive or they’re going to go after your last dollar. Thinly capitalized landlords can go after restaurant owners.”
Serpa isn’t holding out hope for a second stimulus that could spur any reopenings, let alone rent relief. Industry lobbyists have pitched to Congress the RESTAURANTS Act, which would provide a $120B bailout for eateries, but any relief may have to wait for a Jan. 5 runoff election in Georgia for control of the Senate.
Goldberg said restaurants "have a ton of PPP money," but Serpa and Coombs said they spent through their relief funds months ago.
“The bailouts for other industries that have much less employees and labor force, they have these huge bailouts,” Serpa said. “Whereas restaurants are kind of like, go fuck yourself, we’ll just get new restaurants when you guys bail. A lot of people are upset about that.”
Coombs said he would reassess whether Deuxave must hibernate if he saw business go down similar to Boston Chops, where there was no one to feed.
“For me personally, we’re going to fight through this winter,” Coombs said.
Goodwin said his company, Classic Restaurant Concepts, had resources to sustain a dip in sales at The Kinsale, his Irish pub near Boston's government center, and made efforts to keep pay stable for management teams and chefs. But the lack of office workers made hibernation The Kinsale's best shot at survival, he said.
“We have a long history with our landlords, and I feel that we’ve been very good tenants, we’ve never been late with a rent or anything like that,” Goodwin said. “We’ve put a lot of reinvestment back in our properties. They know we’re committed.”