When Eric Banh, who owns Vietnamese restaurants Ba Bar and Monsoon, started watching the novel coronavirus pandemic unfold, he decided to plan ahead. Besides trying to ramp up takeout and delivery services during Washington’s stay-at-home order, he called his bank about the mortgage on his Capitol Hill restaurant space (Monsoon) and secured a deferral plan. He also reached out to the landlords for his Ba Bar locations in U Village and South Lake Union.
Ba Bar remains open for takeout, but Banh says it’s only doing about 30 percent of the business it did before the pandemic hit. Monsoon was “very busy” with takeout orders at first, but Banh said his team decided to close down the restaurant for the safety of his employees. Many of the Monsoon’s staff were caring for elderly parents — including Sophie Banh, Eric Banh’s sister and business partner in the Saigon Siblings restaurant group, who lives with their mother.
“They were really worried about bringing the virus back to their home,” says Banh.
As the COVID-19 pandemic stretches on and restaurants keep taking financial hits, negotiations on rent in Seattle are all across the map — and increasingly, the fate of smaller businesses rests on the flexibility of their landlords. Like Ba Bar, restaurants that are doing takeout are making up only a fraction of their operating costs, and the future remains uncertain.
In mid-March, Seattle Mayor Jenny Durkan signed an emergency order preventing eviction for small businesses for at least 60 days — or until the end of the city’s civil state of emergency. While the order doesn’t have any specific information about whether tenants still need to pay rent, or when, or how much, it instructs landlords to work directly with their tenants to find a solution.
This week, the Seattle City Council passed a resolution putting a moratorium on rent hikes, while also requiring landlords to enter payment plans with certain small businesses and nonprofits within the city limits who can’t afford rent. This resolution sets guidelines around such plans; one notes that businesses wouldn’t be required to pay more than a third of the back rent at a time.
It remains to be seen how the resolution will be put into practice, and what effect it will have on restaurants’ rent burdens. So far, negotiations between landlords and retail tenants in Seattle have been complicated, mostly dependent on whatever working relationship they’ve already established, or how accessible the landlord is. Some landlords own one building; others, like Vulcan, are huge firms. Many landlords are located out of state or overseas and perhaps rely on brokers as go-betweens, and some own properties outright, while others still have a mortgage to pay down.
Tyler Carr, a partner in the firm Johnson Carr, knew his tenants at the vinyl record-themed Capitol Hill bar Life On Mars would be short on cash, and says it made sense to get some clarity for both his business and his tenants.
“They can’t afford to put money out right away,” says Carr. “We had to do something before knowing what the financial picture looks like for us.”
Life on Mars co-owner Steven Severin says they “hit the jackpot” in terms of landlords — although other restaurants aren’t so lucky.
“Bang Bang Kitchen is in a huge apartment complex, and I understand they have more costs than the landlord that may just own one property,” says Miki Sodos, owner of the Othello restaurant, along with Bang Bang Cafe in Belltown, and Cafe Pettirosso on Capitol Hill. “But they also have deeper pockets, and more investors.” Sodos says that the Bang Bang Kitchen landlord originally sent a generic letter that indicated no leniency or forgiveness on rent, before reaching out to find out her individual situation later. “So there is progress, but no concessions just yet.”
Sodos says it was the smaller landlord for Bang Bang Cafe who actually helped her out right away, saying not to worry about April.
“If we’re able to reopen Bang Bang Cafe, it’ll be because of our landlord,” she says.
The deals landlords have with their tenants are evolving as more information emerges about the pandemic, but there are some potential solutions. There’s total or partial forgiveness, i.e., tenants get a break in rent they don’t ever have to pay back. Deferral — meaning a tenant has to pay back the rent money at a later date — is also common. Some landlords are offering a combination of the two.
The granular details vary deal by deal — if they’re even worked out yet. Crucial issues that will need to be addressed are the length of time small businesses will have to pay back the rent they owe; whether they’re on the hook for other costs, like utilities; and whether they will have to present documentation of hardship to get a deal.
Carr says he’s working out a different deal with each of his tenants, which include one other restaurant and a few more waiting to open, but gave a general idea of what he was offering. He says the most practical thing for him and his tenants is to offer deferral immediately, then have them pay the rent back when the restaurants are financially healthy — maybe offering payments over a couple of years.
He says the next step would be partial or full rent forgiveness “in conjunction with the deferral.” For example, Vulcan — which owns multiple buildings around the Seattle area, including the International District — is completely forgiving April rent for all its tenants.
None of the landlords and brokers we spoke to said they were demanding rent on time and in full, but restaurateurs say that some just aren’t playing ball. Alex Pemoulie, director of finance for Renee Erickson’s Sea Creatures restaurant group, works with multiple landlords — with mixed results.
“Some of our landlords have given us some official abatement, some have not,” said Pemoulie. “At least one I know has said absolutely no to any abatement.”
“I was really worried that I wasn’t going to get a response,” says Nakajima. “It usually takes three steps to go to somebody, and I don’t get a response for a long time, but they’ve been pretty responsive, which has been really nice.”
Landlords do have expenses on their end — but whether they have options to offset them depends on a number of factors, including their mortgage agreement and what kinds of properties they own. For some, it could come down to how much of a risk they’re willing to take to keep their tenants around.
The CARES Act, the $2.2 trillion federal coronavirus relief package, gives residential and multifamily homeowners some leeway in paying their mortgages, but doesn’t cut commercial property owners any slack in repaying their lenders (although they can get some assistance in paying their employees, if they have any). The idea, says Glenn Gioseffi, a vice president of debt and equity at Kidder Mathews, is “you’re supposed to know what you’re doing and you’re on your own.”
Bob Wallace, a former Bellevue city council member and CEO of Wallace Properties, says that in many cases, a commercial mortgage agreement will include strict requirements around sticking to a building’s lease terms. If that agreement has a requirement that, for example, requires them to collect the rent on time and in full, that could limit a landlord’s options. He adds that he doesn’t expect commercial lenders to get back to property owners quickly about any pandemic-related questions.
“No landlord in his right mind wants to jeopardize the situation by doing things that he’s not permitted to do by his lender,” says Wallace. (Wallace Properties does own some properties debt-free, but Wallace wouldn’t comment on whether that affected his tenant deals.)
It’s a bureaucratic nightmare that provides no clarity for the future of restaurants in Seattle — they’re in the same position no matter how much paperwork their landlord is buried under. And at a certain point, if there’s no money, there’s just no money, especially since many smaller restaurants doubt whether the federal stimulus package will help them at all.
“[If] your tenant has been closed down for a month, you really can’t expect to get full payment — and you may not get any payment,” says Gioseffi. “And then you have to turn to the bank and say, ‘I have a $30,000 a month mortgage, but I receive zero income’ … then, of course, the restaurant is still shut down through the month of April. This conversation doesn’t get any better in May.”
Landlords aren’t allowed to evict restaurants for the immediate future. But what about when the mayor’s order expires, or restaurants start to get back on their feet? Restaurateurs and landlords aren’t just nervous about when restaurants are allowed to reopen. They’re worried about when the customers, nervous and broke, will actually start coming back.
“I understand that they need cash reserves to be able to basically cover start up costs all over again,” says Carr. “I’m sure that this will be at reduced capacity when they do open. We just need to figure out whatever it is to keep them viable when they return.”
While facing down a monthslong recovery is daunting for restaurants, it also means it’s not in a landlord’s best interest to evict anyone — nobody’s making any money from a vacant storefront.
Still, current restaurant tenants have no guarantees.
“I’m just trying to float for two and a half, three months in my brain,” says Nakajima, who says he’s doing just 10 to 15 percent of his normal business with takeout from Taku. “And if I can, I’ll be able to provide jobs for people again when I reopen.”
It’s uncharted territory for everyone, which means restaurants’ deals with their landlords could change as the pandemic drags on. For those in close touch with their landlords, like Chera Amlag, co-owner of Hood Famous Cafe and Bar in the Publix building in Chinatown International District, it’s an ongoing negotiation: “We’re all trying to figure it out.”