Greed and real estate

images-3There has been a lot of conversation in the twittersphere about a variety of restaurants closing down in NYC due to the rent going up. It has become too costly for those restaurants to pony up for a new lease with a higher rent.

A variety of things went through my head when I saw Bobby Flay’s tweet;  A note to NY landlords. Good restaurants are closing all over the city because the rents are impossible to pay. Stop turning NYC into a mall and then a few days later with Union Square Cafe??? Who’s next?

I have seen more than a few restaurant investment opportunities over the years and IMHO they all come down to three components.  How much is being raised, how many seats and how much is the rent.  Of course, good management and good food would be important too but those are things that don’t always turn out even if you believe that part wrapped up.  Being a good chef is different than being a good chef that can teach a crew in the kitchen to execute on your recipes day in and day out whether the chef is there or not.

In the 80’s Columbus Avenue was booming.  People actually went there as a destination location for restaurants even if they lived downtown.  What happened was the real estate landlords got greedy.  They saw what was happening and raised the rents to a point where every Mom and Pop store or local restaurant closed.  What came in was an influx of nation wide chains because they can afford to pay the rent even if they are losing money in that location.  It is a branding opportunity as much as it is a brick and mortar location.  It was sad to see because at one point the big national brands pulled out when the economy had a downturn and the store fronts remained empty.  Perhaps if the landlords had figured out how to keep the locals there then the storefront would have remained open.  Who knows.

One restaurantier who will go unnamed wasn’t buying if that the imminent closing of Union Square Cafe and WD-50 had anything to do with rent but that they were just not doing the same type of revenue that they were doing years ago.  They had lost their customer base and it is a good way to close shop by blaming it on the rent.  That is up for debate.

What I don’t know is if the landlords of these buildings have used their buildings as collateral to pull out cash so they actually need to raise their rents or if they just see an opportunity to make more cash.  I believe there has to be a balance.  What makes NYC so unique is that it defines capitalism.  Supply and demand work here.  It is also an incredibly creative place and it would be really sad to see chains take over each block.  I can live in other areas of the country to go shop in a mall.  I really do not want to do it in NYC.

Call me naive or crazy but if I was the landlord I would try and find a happy medium.  It is good for the neighborhood and in turn good for NYC.