Survival of the Fullest: Restaurants fear capacity constraints will kill them

Expected decrease in sales will hamper their ability to pay rent

Capacity constraints may cause agony for restaurateurs and their landlords (iStock, Getty)
Capacity constraints may cause agony for restaurateurs and their landlords (iStock, Getty)

As restaurants move to open, owners are agonizing over capacity constraints and social distancing guidelines, which are expected to result in a decline in sales. In turn, their landlords are sure to suffer from heartburn wondering whether the rent checks are coming.

Of the 30 states that have allowed restaurants statewide to resume serving customers indoors, 15 have limited capacity to 25 percent or 50 percent, according to market-research firm Gordon Haskett. Restaurant executives expect the limits to last at least through the summer, traditionally one of the busiest seasons.

Although New York City has yet to set restaurant guidelines, a 75-seat sit-down restaurant would allow for just 20 diners after accounting for employees, under a 50 percent capacity limit, according to James Mallios, a New York City restaurateur and attorney told the Wall Street Journal. The number drops to around five diners at a 25 percent capacity limit.

“It’s like selling tickets just for the bleachers at Yankee Stadium,” said Mr. Mallios, whose restaurants include Amali and Calissa.

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Some restaurateurs fear that if they can’t fill seats, they won’t be able to make rent, by far their largest fixed cost. Bars and entertainment venues have expressed similar concerns. Mayor Bill de Blasio has attempted to assist restaurants by signing a package of Covid-19 relief bills, including one that temporarily bars landlords from going after restaurant and store owners’ personal assets.

Co-owner of Texas-based M Crowd Restaurant Group Inc. Ray Washburne, opened most of his 25 Mi Cocina locations earlier this month at 25 percent capacity in accordance with Texas’s initial restrictions. He said other restaurateurs have since asked him if his company wants to take over their leases because they can’t make money at reduced capacity.

Sunil Dharod, owner of 75 Applebee’s restaurants in Texas and California, similarly said he has asked landlords for rent breaks and is considering closing 10 percent of his restaurants if steep sales declines persist.

“We will continue to lose millions of dollars. That will become very, very challenging,” he said. [WSJ] — Sasha Jones