Recently, our team’s working hours have been spent advising clients how to redo tasks that should have been in the rearview – restructuring, reopening, and repurposing. With my unique perspective as both restaurateur and real estate advisor, I’ve been especially hard at work helping our clients make the best decisions they can in the face of impossible situations.
As Phase 2, Part 2 of Reopening gets underway in Massachusetts, here are my key takeaways from the frontlines of bringing our community back from its COVID-19 hibernation.
Everyone wants to see as many stores and restaurants reopen as possible. In the real estate community, these re-openings are vital to maintaining long-term valuations. If we hope to reestablish market rental rates, we need as much brick & mortar revenue data as we can get.
Along those lines, it looks like retailers and restaurants have returned to some normalcy this week. Sounds great, right? Not so fast.
As a partner in restaurants in the city of Boston, I’ve spent the past 15 weeks (wow! has it been that long?!?) asking myself, “How will I pay rent, will I be able to access the PPP, should I stay open for take-out, and will business levels come back once the state allows me to reopen?”
And I’m hardly alone. Many operators chose to lay off their workforce quickly in order to survive. Those who remained open for take-out have reduced staffing levels to the bare minimum. For most, take-out wasn’t about making money, but rather staying relevant and keeping a few folks employed who otherwise may not have been able to collect unemployment.
And that’s before considering rent. Restaurants are not sitting on cash reserves sufficient to weather events like this. Surviving the snowstorms of the winter of 2015 was hard enough, and the lost revenue from that time is a fraction of lost revenue projections due to COVID-19. How can restaurants pay rent if their entire business model is predicated on being open and as busy as possible? Without relief, the majority of operators would be dead in the water. That doesn’t serve anyone, landlord or tenant.
In my role as Director of Hospitality at Boston Urban Partners, I advise many well-known landlords, and understand the complex needs and challenges they face in these uncertain times. My team has worked hard to find common ground between owners and occupants, and we have come up with many sustainable arrangements that help tenants and prevent long-term vacancy for landlords.
However, we need to recognize that there are many more obstacles facing restaurants as they reopen. While emotionally harrowing, the logistical process of shutting down was relatively easy; it was a government mandate. It’s the process of reopening that is going to be hard. Margins in the restaurant business were already razor thin, and operators now will have to rehire and retrain staff, revise menus, and implement dozens of new protocols – a major investment. The ability to make any money when your capacity (and revenue potential) is cut in half will be extremely difficult too. Just because the state says I can operate at 50%, doesn’t mean my revenue will be at 50% of what it once was.
It took my partners and me close to 8 years to open our 2 restaurants, and now we’re facing reopening them again in the space of 2-3 months. And we’ll be competing with every other restaurant reopening in the city. Further complicating matters is that there is not a one-size fits all “Reopening Plan.” We’ve been open for outdoor dining at Porto since Phase 2 began. Business has been generally good; good being a relative term here. The demand for the seats we do have has been extremely high, however, seating capacity, even outdoors, has been reduced due to spacing requirements. Many restaurants have yet to open as they may be taking the “let’s see what happens” approach. Others who do not have outdoor seating have been waiting for special permitting from the city to occupy parking spaces with tables and chairs. Both of these factors mean fewer options for diners and a greater demand for the seats that are available. We know this won’t last forever. With more seats coming online everyday (indoor and outdoor) we will see a roller coaster of supply and demand curves for months to come. Meanwhile, we have no set date for implementing our Reopening Plan at restaurant Trade, which relies heavily on an office population that hasn’t come back to work yet.
If the restaurant industry wasn’t hard enough before, in these last few months it’s been near impossible to make any financial sense of it all. But, maybe there is a silver lining here. The restaurant industry was long overdue for a correction, and some might argue the correction had already begun before the pandemic. Without COVID-19, a true correction could have been drawn out over the next few years. Perhaps the shutdown brought us to the bottom faster, allowing a recovery to start that much sooner. Many estimate that 20-25% of restaurants won’t reopen. And that’s devastating, no other way to say it. However, for the restaurants that survive 2020, that could mean less competition, a bigger labor pool, and a lot of runway to thrive.