New menu of restaurants ushers in

When the economy is strong, many landlords turn their noses up at restaurant tenants, fearing unpleasant food odors, vermin and noise. But as retail vacancies proliferate across the city and the recession drags on, the tables have turned and landlords are rethinking their disdain for eateries.

“They used to be sort of perceived as a hassle because of potential odors, but now they are seen as rent-paying tenants,” said Jeffrey Roseman, executive vice president and principal at Newmark Knight Frank, who represented landlords and tenants in a handful of restaurant deals last month. “Landlords who never wanted restaurants in certain spaces now will consider them.”

In fact, not only are landlords welcoming restaurants, they are doing deals at discounts of 20 to 30 percent off the rents from a year ago at this time.

These lower rents — and the increase in the number of restaurant spaces returning to the market as existing eateries shutter — are driving the current crop of deals. Meanwhile, the profile of growth-minded restaurateurs has shifted to smaller entrepreneurs who formerly had been priced out.

“The guy who has three-to-five restaurants is looking to score on the real estate market,” said Spencer Levy, director of hospitality real estate at Robert K. Futterman & Associates.

Reflecting the “doing more with less” recession mantra, brokers expect many deals for around 2,500 square feet or less, with the space taken by ethnic restaurants that offer meals at affordable price points.

The recent 10-year deal for Spice Corner’s space at 236 Eighth Avenue, brokered by Steve Rappaport of Sinvin Realty, exemplifies this trend.

The fifth location for the growing Thai chain, the space is just 2,600 square feet.

“You have a new breed of restaurants opening, smaller and mostly ethnic: Asian, Brazilian, Portuguese or tapas bars,” said Ben Fox, president of Winick Realty Group.

The cloudy climate creates a wider buffet of choices for players such as Adam Eskin, the CEO of Pump Energy Food.

Sign Up for the undefined Newsletter

The six-store Manhattan chain, which features low-carbohydrate, whole-wheat wraps for under $8 each, debuted a new flagship at 80 Broad Street earlier this year. Eskin is working with broker David Latman of DLL Real Estate, scouting for other long-term lease deals for 2,000-square-foot spaces.

“As more storefronts open up … we have greater opportunity to find the right locations at the right prices,” said Eskin.

Deals for white-tablecloth temples to epicurean indulgence are absent, brokers said. That’s not surprising, given the long list of high-end restaurants that have closed this year, including La Goulue and Lever House.

Steakhouses may prove one exception on the upper end. American red-meat purveyor Morton’s and Brazilian churrascaria Fogo de Chao are each said to be seeking between 5,000 and 10,000 square feet in Midtown or Midtown West.

Futterman’s Levy said his firm is both receiving better deals for restaurateurs and offering lower rates on space RKF is marketing. When RKF clinched a 15,000-square-foot lease for restaurateur Simon Oren’s Tour de France Group at 450 West 33rd Street earlier this year, the rent came in at 50 percent of the asking price, Levy said.

Now, RKF is soliciting tenants for a 100,000-square-foot space at 229 West 42nd Street, with an eye toward making the space a food destination housing several tenants. Asking rent is $250 per square foot, a 30 percent drop from what it would have been when the economy was still strong, Levy said.

Newmark Knight Frank’s Roseman said that in exchange for rent reductions some landlords are seeking a percentage of sales above a given benchmark so both sides can benefit if sales surge once the economy improves.

Meanwhile, conversions are the hottest item on the real estate recession menu, as some landlords are forgoing key money and fixture fees for spaces with fully built kitchens. Consultant Alan Fleischman, a licensed real estate broker and former restaurateur who now runs Restaurant Development Associates, said last month he was close to clinching two such deals. One space, in Midtown East, is 1,500 square feet, while the second, in Midtown West, totals 3,600 square feet on two floors.

This wave of dealmaking is contributing to a jump in applications by food-related businesses. The Department of Health and Mental Hygiene saw a spike in operating permits to 1,411 in the first four months of 2009, up 25 percent from the year-earlier period, according to an April report by Crain’s New York.

At press time, the agency had no additional information on the types of eateries opening or where they are concentrated. But, New York State Liquor Authority data showed that applications by restaurants for licenses to serve wine are about even in Manhattan and Brooklyn from January to mid-June 2009 compared with the same period last year.

“So many restaurants are opening — not because people are so rich and they can open restaurants at will; it’s just that this is an opportunity for people with some knowledge … [who] are taking fully fixtured restaurants and jumping in,” said Fleischman.