Closed sign on a window due to COVID-19.
Unsplash/Anastasiia Chepinska

The winter won't be easy for a lot of restaurants.

The Restaurant Rent Crisis Continues

Nearly 90 percent of NYC operators could not pay full rent in October—a number that has continued to rise throughout the pandemic.

The NYC Hospitality Alliance has conducted studies throughout the pandemic centered on whether or not restaurants and bars can pay their rent. October’s detailed a “cold reality” settling in over one of the country’s prime markets.

A staggering 88 percent of more than 400 respondents said they could not pay full rent this past month. More troubling, however, was the trend line. This figure is up from previous months’ reports and a blaring sign the sector’s historic crisis is far from over. The burden is mounting month-on-month as operators stare down winter and how it might disrupt outdoor dining.

Just this week, New York Gov. Andrew Cuomo announced State Liquor Authority-licensed restaurants and bars must set a 10 p.m. curfew. They can sell takeout and delivery after, but no alcohol. Cuomo said of COVID-19 in a statement, “it is going up and we have always been good at staying ahead of COVID and this is the calibration that we've talked about: increase economic activity, watch the positivity rate, positivity rate starts to go up, back off on the economic activity.”

READ MORE: How are restaurants preparing for winter?

“As frigid winter temperatures approach New York’s untested outdoor dining setups, high financial costs and uncertainty about dining behaviors hang over restaurant owners who are otherwise reduced to serving customers at 25 percent capacity indoors, and due to an increase in statewide COVID-19 infection rates now have their operating hours further restricted,” the Alliance added.

The organization’s October data on rent payments outlined a grim future for thousands of NYC small business owners. Simply, you need to consider the possibility restaurateurs who could not pay full rent in October probably didn’t do so in September, August, and July, either. So they’re likely to owe substantial back rent at this point. “These business owners have amassed significant personal debts, which impacts their prospects of saving their businesses and starting new ventures in a post-pandemic New York,” the Alliance said.

“Going on eight months, more than 24,000 restaurants, bars, and clubs citywide that are so critical to New York’s economic and social fabric have been in dire straits,” Andrew Rigie, executive director of the Alliance, said in a statement. “Half of the industry’s 300,000 employees are still without jobs, and those numbers can’t improve while more businesses are permanently closing and leaving empty storefronts in our neighborhoods. With many venues still closed, new restrictions further limiting the operating hours of those open, and cooler weather making outdoor dining less feasible, New York City’s hospitality industry simply cannot wait: The Restaurants Act and the Save Our Stages Act need to be immediately passed by the U.S. Senate and enacted by the President without delay.”

In regards to the curfew, announced Wednesday, Rigie said NYC restaurants have been left in purgatory yet again. Do the restrictions apply to indoor and outdoor dining? Do customers need to pick up and exit once the clock strikes 10 p.m.? That’s a really critical detail considering how it will affect reservation slots. Restaurants will need to take heed of table turns and plot course in response. Will the last guests be welcomed in at 8, 9, 9:30? Do I need to kick them out if they’re lingering or just stop serving drinks? All that considered, 10 p.m. might be mean a lot of different things for a lot of different operators.

“These new restrictions should be publicly justified with contact tracing data because they will make it even more difficult for these small businesses to survive,” he said. “We demand that our elected leaders provide financial support to our city’s restaurants and bars before they permanently shutter and put tens of thousands of New Yorkers out of work.”

Looking further at the rent survey, the Alliance found 30.1 percent of operators paid zero rent in October. Nearly 60 percent (57.7) paid some. A touch over 12 percent (12.2) paid in full.

From the respondents who paid “some rent,” the Alliance asked what percentage.

  • Less than 50 percent: 35.5 percent
  • Half: 45.5 percent
  • More than 50 percent: 19 percent

“Has your landlord waived any of your rent in relation to COVID-19?

  • No: 58.8 percent
  • Yes: 41.2 percent

If so, what percentage of rent was waived?

  • Less than 50 percent: 32.3 percent
  • Half: 45.7 percent
  • More than 50 percent: 22 percent

Operators also said 67.4 percent of landlords had not deferred rent in relation to COVID. And just 17.2 percent said they renegotiated leases due to the crisis. More than 50 percent (53.7) said they didn’t. Just about 29 percent said they had in “good faith negotiations.”

As noted, the key here is how it’s moved in recent months.

The number of NYC restaurants, bars, nightclubs, and event venues that have not been able to pay their rent steadily increased from the pandemic’s arrival.

  • June: 80 percent
  • July: 83 percent
  • August: 87 percent
  • October: 88 percent

There’s been a mere 6.8 percent increase in establishments that have successful renegotiated their leases between June and October/

An August study from the James Beard Foundation said close to 75 percent of operators reported taking on new debt obligations north of $50,000. Also, 12 percent tagged the number at $500,000 and above.

AlixPartners said full-service units increased debt between 2019 and the last 12 months 2020 by 8.1 percent. The sector witnessed a significant 45.6 percent decline in EBITDA. During Q2 of this calendar alone, the first full quarter of the pandemic, 41 percent of all restaurants reported negative EBITDA and 45 percent shared negative levered free cash flow.

So to the Alliance’s concern, restaurants are getting more and more backed up financially ahead of what promises to be a difficult, cold stretch.

Restaurants continue to fight a perception battle as well. Nature Today recently published an article using a new model that leans on mobile-phone data to map people’s movements. It came out with a list of the venues that could account for most COVID infections in the U.S. The story also showed how reducing occupancy in venues could cut the number of infections.

The headline: “How to stop restaurants from driving COVID infections.”

Its mobile data suggested restaurants, gyms, and cafes could be COVID hotspots. An excerpt—“opening restaurants at full capacity led to the largest increase in infections, followed by gyms, cafes and hotels and motels. If Chicago had reopened restaurants on 1 May, there would have been nearly 600,000 additional infections that month, while Opening gyms would have produced 149,000 extra infections. If all venues were open, the model predicts that there would have been 3.3 million additional cases.”

The model added if occupancy for all venues was capped at 30 percent, it would reduce the number of additional infections to 1.1 million. At 20 percent, it goes down 80 percent to about 650,000 cases.

recent modeling exercise, to be published in Natureoffered results designed to illustrate health disparities and evaluate the disparate impact of reopening restaurants on economically disadvantaged groups.

The National Restaurant Association took issue with some of the methods. It said, “the project created an ill-advised correlation between the exercise and the risk of dining at restaurants. Like polling data, modeling data cannot reliably be used to draw definitive conclusions about the actions of a group of people or determine outcomes. “

The model used anonymized data from mobile applications to study mobility patters from March through May. Researchers used this approach to study the mechanism behind disparities and to quantify how different reopening strategies impact disadvantaged groups. 

“Due to the complexities of the real world, predictive models are inherently fraught with error even under the best of circumstances. In this case, the researchers' model seems to fit their data, so they conclude that it is reasonably accurate. However, this is not enough to assert that restaurants are a significant source of risk across the entire United States,” the Association said.

Here’s its list of concerns:

Did not consider restaurant safety measures—Not all full-service restaurants are equal in relative risk. The model did not include the robust safety protocols used at restaurants throughout the country including: face-covering use/enforcement, changes in process for physical and social distancing (seating, waiting areas, lines, etc.), air flow and exchange management, indoor vs. outdoor dining, and surface disinfecting.

Predicted transmission versus actual contact tracing—The report determined “predicted” transmission rates based on modeling only, not on real-world contact tracing. 

Used a limited sample size—The study was conducted in just 10 major metropolitan areas and was not a representative sample of points of interest around the country.

Unable to account for different types of movement—The model was conducted at a time (March through May 2020) in cities where restaurants were closed to indoor dining during most of that period, serving food for takeout and delivery only. Visits to restaurants to pick up takeout orders (which certainly could be captured in mobility data erroneously, as an on-premises visit to the restaurant) were not segregated in the points of interest listings.

Unable to account for different types of restaurants—The points of interest did not discriminate between types of dining establishments, indoor dining, takeout service, etc. Not all restaurants carry equal risk—all of the management practices that have been published as guidance will reduce individual and population risks.

Used secondhand datasets—The datasets used to calibrate confirmed case and death counts came from the New York Times and their reporters who, in turn, reported them from public news conferences and public data releases. They were not obtained directly from public health authorities who frequently update and revise the datasets.

Did not include mask wearing in the analysis—The two biggest factors identified by the Centers for Disease Control and Prevention and other public health officials—use of face coverings and physical distancing—are not mentioned. The model essentially estimated all levels of compliance as equal which, over time since the sampling was done, have proven that many restaurant operators are effectively managing compliance.  

The report states: “The mobility dataset we use has limitations: it does not cover all populations, does not contain all Points of Interest, and cannot capture sub-Census Block Group heterogeneity. Our model itself is also parsimonious, and does not include all real-world features relevant to disease transmission.”

“We would not dispute the researchers’ conclusions that disadvantaged individuals had higher mobility during the research period and therefore may have been at higher risk of contracting SARS CoV-2,” the Association said. “However, absent contact tracing and public health data determining who among the groups actually contracted the virus and without a higher level of specificity to where they contracted it, using a modeling exercise with anonymized location data pulled from mobile devices is not an acceptable way to determine that restaurants were a likely cause for virus transmission.”

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