A new study found that 87 percent of businesses could not pay full rent in August.

The cut-throat nature of New York City’s real estate market made it difficult for small businesses to thrive even before the pandemic. But it was a high-risk, alluringly high-reward arena that attracted some of the most diverse options in America, if not globally.

Today’s reality, however, presents a devastating blend of regulations, high-priced barriers, and a city that remains cautious with its COVID-19 response.

According to a September survey from the New York State Restaurant Association, as many as two-thirds of the state’s restaurants could permanently close by year’s end without additional government aid. The New York Times estimated at least 1,000 eating and drinking establishments have gone dark already.

In the NYSRA’s survey of 1,000-plus operators, 55 percent of those who expect to close believe they’ll do so before November. Only 35 percent expect to remain in business come January.

Gov. Andrew Cuomo has kept indoor dining off limits in NYC since March. It’s scheduled to resume at 25 percent occupancy September 30. November 1 will then be the deadline for officials to decide whether the Big Apple should progress to 50 percent capacity.

NYC remains the only municipality in the Tri-State area with barred indoor dining. Connecticut allowed dine-in traffic in June and New Jersey returned September 4.

This has been a contentious point, to put it lightly. At the beginning of September, a group of restaurant owners filed a $2 billion class-action lawsuit against government officials in an attempt to force their hand.

Additionally, NYC is a bubble within its own state, as Gov. Cuomo enabled operations outside the five boroughs to seat customers at a limited capacity.

Last week, the New York City Council passed an optional restaurant surcharge law 46–2 that would allow operators to charge as much as 10 percent on customers’ dining (indoors or outdoors) to cover COVID-19 expenses. Termed the “COVID-19 Recovery Charge” it does not add to the guest’s overall tax or apply to delivery or takeout orders. Restaurants are free to use the funds however they like, but must make it clear the surcharge is not in place of tips or gratuity for waitstaff.

If restaurants fail to adhere to the rules, they face a civil penalty between $50 and $350.

Republican City Councilman Joseph Borelli told CNN the surcharge will aid restaurants who don’t want to navigate the burden of raising menu prices. Borelli also noted New York was the “only city that we knew of” that had a ban in place to prevent restaurants from applying a surcharge. It dates back 45 years.

“If you go to a hair salon, a gas station, or any other business in the city of New York, the owner is allowed to charge you a surcharge for basically whatever they want,” Borelli told CNN. “They obviously have to disclose it and you have to agree to pay it, but they’re allowed to. It’s only restaurants that are banned from this.”

The bill enables restaurants to add the surcharge for up to 90 days after full indoor dining is restored and there is no longer a statewide disaster emergency from coronavirus.

Whether or not this boost helps NYC operators survive, en masse, remains to be seen. According to a recent survey from Coca-Cola, restaurants believe they need to reach 55 percent seating capacity in order to remain profitable. A previous study from James Beard tapped the number at 60 percent, on average, for independents.

Coca-Cola’s data found restaurant owners invested, an average, $7,400 to adapt to the “new normal,” things like PPE and enhanced protocols (training, cleaning, Plexiglas, etc.) and think it will take at least six months to recoup that expense.

In the CNN story, Philippe Massoud, CEO and executive chef of Flatiron District-based ilili, said the surcharge should keep his restaurants from dying “on the operating table.” He said a box of gloves, which originally cost about $26–$32, now runs $160. Masks tack on an additional $1,500–$1,800 every four to six weeks.

The NYC Hospitality Alliance Monday said local restaurants are in dire need of a roadmap for expanding further. The reality is 25 percent occupancy is just a test run for most that, without outdoor dining, doesn’t add up from an overhead equation. Especially in NYC.

“Even before the pandemic when operating at 100 percent occupancy, these small businesses were struggling to stay open,” Andrew Rigie, executive director of the NYC Hospitality Alliance, said in a statement. “Now we’re seeing widespread closures, approximately 150,000 industry workers are still out of their jobs, and the overwhelming majority of these remaining small businesses cannot afford to pay rent.”

The company’s latest survey of restaurant and bar operators, which it’s been conducting since COVID’s onset, found 87 percent of businesses could not pay full rent in August. Thirty-four percent were unable to pay any rent at all. “As New York’s infection rate remains low, the number of restaurant’s unable to pay rent remains high, increasing from 83 percent in July and 80 percent in June,” the Alliance said.

Per the survey of 450 operators, 60 percent of landlords still have not waived rent during the pandemic, and, of landlords who did waive rent, less than a third waived more than 50 percent. The survey also discovered 90 percent of respondents could not renegotiate their lease as a result of COVID-19.

And, to note, these numbers are coming with outdoor dining in full swing. The National Restaurant Association pointed out to Congress in a letter last week that outdoor dining will soon be impractical for countless operators across the country, especially in the Northeast and Midwest. Without immediate steps from Congress, “thousands of restaurants may close before you reconvene after the November elections,” the Association said.

“The hospitality industry is essential to New York’s economic and social fabric, and to ensure the survival of these vital small businesses and jobs, we urgently need rent relief, an indefinite extension of outdoor dining, a roadmap for expanded indoor dining, covered business interruption insurance and immediate passage of the Restaurants Act by Congress,” Rigie added.

The Restaurants Act, a proposed $120 billion relief package, added 12 senators to the cosponsor list recently, including Cory Booker.

For perspective on how complex this outdoor dining conversation could be come winter, Hoboken, New Jersey, Mayor Ravi S. Bhalla recently shared what outdoor dining will look like as temperatures drop. Guidelines include safe, outdoor heating options, application information for businesses to continue participating, and procedures on snow removal. There’s a lot in that link.

Options in Hoboken include sidewalk café expansions—daily use of sidewalk area in front of business for restaurant seating or retail; “strEATERY,” which is the daily use of curbside parking spaces for restaurant seating or retail; parklets for seasonal use of curbside parking space(s) as a platform extension of the sidewalk for restaurant seating or retail; and open street, or temporary scheduled closure of certain blocks of streets for restaurant seating or retail.

A sample of the outdoor guide:

  • Electric and propane heaters will be allowed with approval from the Building Department (electric) and Fire Department (propane). The latter will need to approve any seasonal canopy larger than 10’ x 10’.
  • Outdoor dining will close every day by 11 p.m.
  • No standing occupancy allowed or waiting customers to congregate. Reservations are recommended, or cell phones to call when the table is ready.
  • No DJs or amplified music, broadcast announcements, or speakers are allowed.
  • Live acoustic music is permitted until 10 p.m.
  • TVs and projectors are allowed, but must be on mute.
  • Approved parklets require a snow removal plan to remove snow and from 4 feet in all directions. It must be removed daily, during storms as well.

NYC Mayor Bill de Blasio previously extended outdoor dining through October, promising it would return next summer. There are more than 10,000 restaurants participating in the city’s Open Restaurants Program.

The Alliance’s recent finding on rent payments shows a steady increase in concern. The number of NYC restaurants, bars, nightclubs, and event venues that have not been able to pay their rent has lifted throughout the pandemic.

  • June: 80 percent could not pay rent
  • July: 83 percent could not pay rent
  • August: 87 percent could not pay rent.

Meanwhile, the company recorded only a 4 percent increase in renegotiated leases between June and August.

In August 2020, here’s how much the surveyed business expected to pay of their rent:

  • None: 34.1 percent
  • Some: 48 percent
  • All: 12.9 percent
  • Not sure: 5 percent

To circle, only 13 percent of operators planned to fork up full rent.

From the respondents paying some rent, 29.8 percent said they expected to pay less than half; 49.1 percent said they’d pay half; and 21.1 percent planned to pay more than half.

In regards to landlords waiving rent, 43 percent reported a half-price measure; 28.5 percent said it’s been less than 50 percent; and 28.5 percent selected more than 50 percent.

A shade over 61 percent said landlords have not deferred any portion of rent in relation to COVID-19.

On renegotiations, 57.1 percent said no; 14.9 percent yes, and 28 percent “in good faith negotiations.”

Consumer Trends, Feature, Finance