When the stock market started its stunning series of swoons last fall, budget eateries Chipotle and Just Salad on Maiden Lane were among the few Wall Street-area businesses still drawing lunchtime lines, while demand slowed at high-end restaurants.
As 2009 starts, restaurant industry brokers expect inexpensive eateries, along with cut-rate coffee conglomerate Dunkin’ Donuts, to continue adding locations to capitalize on demand for lower-priced fare in the economic crisis. Newmark Knight Frank Retail, for example, had seven or eight deals for Chipotle and Pret A Manger in the works at press time.
Any restaurant company looking for space will have many choices and greater negotiating power, after a wave of closures last year that is only expected to intensify in 2009. The Zagat New York City restaurant guide lists notable closings including Café Gray, Coco Pazzo, Florent, L’Impero, Rain, Tasting Room and Tuscan Square. Popular restaurant blog Eater.com tracked more than a dozen closures or imminent shutdowns in November alone. That month, the site’s editors suspended a ballooning “Deathwatch” list and said they planned to launch a “Rally Cry” list instead, to draw attention to struggling eateries in order to help them stay open.
Still, some high-end restaurant chains, including Bryant Park Grill operator Ark Restaurants Corp. and Morton’s Steakhouse, were also said to be on the hunt for new locations. New York-based Ark, with revenues of $124.2 million last year, did not respond to a call for comment, but Morton’s confirmed to The Real Deal that its search was still active.
“We’re negotiating a handful of different deals,” said Ronald DiNella, chief financial officer of the Chicago-based Morton’s. “This economy has slowed us down a bit, but we think there’s great opportunity in New York.”
The National Restaurant Association forecasts anemic total sales growth for 2009, and, when adjusted for inflation, the numbers are expected to register a 1 percent drop. This outlook follows a dramatic plunge in deals in late 2008. In December, brokers at Newmark Knight Frank and Robert K. Futterman & Associates saw restaurant deal activity drop by half compared to a year ago.
Deals were also taking three times as long to convert to closings, and some investors were pulling out.
“I’ve lost a few deals recently that were significant, due to financial backers waiting to see where things turn up,” said Spencer Levy, director of hospitality at Robert K. Futterman.
Restaurateurs still in the market for space were driving very hard bargains. Sources said rents were coming down 10 to 30 percent, while tenants who completed transactions as far back as 18 months ago have been asking brokers to reopen negotiations.
“Rents are coming down where they are able to come down, where the landlord didn’t buy the building recently and is not handcuffed by certain parameters the bank is forcing on him,” said Jeffrey Roseman, a principal at Newmark Knight Frank Retail.
While statistical evidence of increased closures is not yet out, anecdotal evidence appears to indicate that restaurant shutterings are on the rise with the margin for error for weak players such as sandwich chain Starwich, which filed for bankruptcy protection in August and then closed its doors in the fall, gone. Closures have hit casual restaurants as well as some high-end locations: both Monster Sushi on Hudson Street and Grayz, the high-profile West 54th Street eatery from four-star chef Gray Kunz, closed late last year. The West 54th Street space was reportedly set to reopen this year as a new restaurant named Gneiss.
“People are closing like crazy, especially the small places,” said Jay Cheshes, Time Out New York’s restaurant critic. He added, “In good times, you can get away with more, so someone like me writing a negative review may not kill you; these days, people have less money to spend, and they are going to think twice before going to a restaurant.”
Even in good times, 70 percent of the restaurants and bars that open in New York change ownership or close in the first five years of operation, according to Chuck Hunt, executive vice president of the New York State Restaurant Association. The economic crisis is adding even more pressure to the city’s 26,000 eateries and bars, because cash-strapped consumers are likely to cook at home rather than dine out, or trade down to cheaper eateries.
As a result, brokers see a shift toward fast food and a decline in sit-down full-service restaurants operated by national chains. Time Out New York’s Cheshes expects 2009 to see a rise in comfort food and simple décor rather than opulent interiors. Brokers also forecast that nightspots and eateries that rely on Wall Street wealth will face trouble after the shakeout and stumbles in the banking sector last year.
“Where you will probably see some fallout is the nightlife business,” said Roseman. “That disposable income is drying up, investment bankers flaunting it going out to these clubs.”
The long lag between a restaurant lease deal and opening day means New York will continue to see openings early this year despite the economic crisis. Business lunch hot spot Capital Grille, for example, inked two new Manhattan deals — at 1271 Sixth Avenue in the Time-Life Building and at 120 Broadway — in May. The chain did not return a call seeking comment, but sources expect the eateries to open this year.
“There will continue to be restaurant openings where people committed money prior to the economic downturn,” said Joseph Isa, senior director at Winick Realty Group. “People are not going to walk away from a significant investment.”