When the novel coronavirus pandemic initially hit Chicago back in March and Gov. J.B. Pritzker ordered all restaurants and bars to close to in-room dining, a panic soared throughout the hospitality industry. Thousands of establishments shut their doors immediately for indoor dining, leaving countless people out of work. Many questions arose: When could restaurants fully reopen? How many might not return? What would Chicago’s retail landscape look like with so much restaurant vacancy?
Restaurants that stayed open for delivery and carryout business saw an 80 percent drop in sales, the Illinois Restaurant Association said at the time. Indoor dining, which just restarted, has to follow the same social distance guidelines as outdoor dining. Owners have to ensure tables are set six feet apart and staff have to wear masks. Chicago then also introduced a program to close streets heavily populated with restaurants in various parts of the city — Lakeview, Chatham, and Little Italy, for example — to allow expanded outdoor seating to bolster business. Lakeview is the only neighborhood where the program has commenced as of yet.
When restaurants, bars, and brewery taprooms resumed seating on-premise customers on June 26, the state required restricting seating to 50 people or less. In many cases, this reduces patron capacity to 25 percent of normal — not enough for a business to thrive, let alone survive. The restaurant association estimates that 20 to 25 percent of all restaurants will permanently close due to COVID-19, while the Independent Restaurant Coalition, a national restaurant industry lobby, estimates upward of 85 percent of independent restaurants nationwide risk closing by the end of 2020. Some wonder if a restaurant bubble had emerged in the last few years and if COVID-19 possibly sped up its burst.
“There’s no question the industry had become oversaturated with really aggressive unit growth,” says Melissa Wilson, a principal in the advisory services group at Technomic, a research and consulting firm for the food industry. “As there was a need for correction, I would have expected to see more slowing of chain growth. But it’s the independent operators that will be suffering. They don’t necessarily have the capital reserves to sustain.”
Closures have already started. Since the onset of the pandemic, a number of Chicago’s restaurants have permanently shut down including Blackbird, Toast, Ditka’s, Fahlstrom’s Fresh Fish Market, Income Tax, Jeri’s Grill, Congas, Taqueria Sabor y Sazon, Trattoria No. 10, and Simply It. Restaurants without enough revenue or access to government loans may shutter; estimates say 1,500 of Chicago’s approximately 7,500 restaurants may not reopen. If that happens, a glut of real estate may sit vacant for the foreseeable future, which could point to opportunities for others.
New opportunities arising from closures
“It’s likely there will be higher than normal vacancy,” says Michael Wexler, principal of Canvas Real Estate Collective. “Restaurants are in survival mode. Some have already pulled the plug, but many others intend to reopen. I believe it will be tough for operators once they start fully reopening. Others who have concepted new business models will be able to take advantage of vacant space as well. Opportunities that may have not been available before will present themselves to the survivors and new ventures.”
Faced with vacant retail space, but also sometimes out of compassion, many landlords are working with restaurant tenants to help keep them in business through rent abatement and, in some cases, reduced rent.
“We’ve been really candid with our tenants and are working with each one individually,” says Gino Battaglia, who, along with his wife, Bernadette, owns many spaces around the city housing restaurants, including Brindille, the recently shuttered 25 Degrees, and Prosecco in River North; Chef’s Special Cocktail Bar and Small Cheval in Bucktown; and California Clipper in Humboldt Park. The Clipper recently closed amid a bit of controversy. “We have some really good people as tenants and we want to keep them. If they don’t have a business, their employees are out of a job. This virus, it’s going to take some time to work our way through — a year or two before we get back to a normal situation. In the meantime, we have to adjust.”
Neighborhood restaurants may benefit
One positive is that this experience may be a boon to neighborhood restaurants, where quality spaces may open up with lower rents.
“I think there will be silver linings in the next 24 months,” says Marcus Sullivan, assistant vice president of SVN’s restaurant resource group. “There will be opportunities for groups to get into spaces that were too expensive or had too much competition. [Some] will step into second-generation spaces and get into neighborhoods that were too cost prohibitive in the past. I’m hopeful that will help the neighborhoods bounce back quicker.”
That sentiment is felt among many in the restaurant industry. People likely feel more comfortable staying closer to home, as they may know a restaurant owner or staff at a favorite local place.
“I think this will be the resurgence of a lot of the neighborhoods,” says Scott Weiner, co-owner of the Fifty/50 Restaurant Group, which owns 19 restaurants and bars around the city, including Roots Pizza, West Town Bakery, the Fifty/50, Berkshire Room, Utopian Tailgate, and Portsmith. “People feel comfortable in their neighborhoods. They can walk or drive.”
Weiner, along with partner Greg Mohr, bought the buildings that house many of their neighborhood restaurants, where they’ve operated with carryout and delivery since the government-mandated shut down. Weiner says they were current on all their payments, but adds that their two banks — Wintrust and Gold Coast Bank, both local — have worked with them to stay in business. That said, he still has concerns. Weiner feels the local governments, which collect real estate taxes, have to work with local businesses, otherwise more issues may arise.
“It’s fair to say our buildings are only worth the occupancy we can put in them,” Weiner says. “My buildings are essentially worthless if no one can go in them. If the law won’t know when we’ll have 100 percent occupancy, the reality is my building is worth half the price, so I shouldn’t have to pay real estate taxes on that amount.”
Independent owners adjust
Independently owned establishments likely feel the pandemic’s crush more than large restaurant groups or chains. While some have continued to operate, they faced even slimmer-than-normal margins.
“The family has had to take pay decreases,” says Jonathan Zaragoza, whose family owns Birrieria Zaragoza in Archer Heights on Chicago’s Southwest Side, which continued to offer takeout throughout the pandemic. “We own our building and we made [our monthly] payments. We put the restaurant first. If there’s no restaurant, there’s no anything for us. We’re making sure we’re doing all we can to stay afloat.”
The Zaragozas are far from alone in doing whatever is needed to save their business. Stephanie Hart, who owns the 16-year-old Brown Sugar Bakery in Chatham (with other still-closed locations on Navy Pier and in the Austin neighborhood), closed when the COVID-19 crisis hit; she slowly started reopening around Mother’s Day. Hart is looking at setting up a farmers market inside the Austin location and possibly even adding a bakery truck to do mobile pop-ups around the city. Hart leases her space on 75th Street and so far things look positive. She was able to secure a Paycheck Protection Program (PPP) loan in the second round of funding and also has a good relationship with her landlord.
“My landlord told me I didn’t have to pay rent until I got some money,” Hart admits. “He didn’t put any pressure on me. Everybody was trying to help everybody. When I got the PPP, I started paying him. I didn’t feel crushed. I didn’t have anyone pressuring me.”
Fighting toward a new normal
While there’s much uncertainty about restaurants’ survival, people have remained optimistic about what the future may bring.
“Reopening and moving forward has to be calculated and done right,” SVN’s Sullivan says. “The road to getting back to normal is compounded by additional pressures. People who were going to do deals are pausing now. The best course of action, unfortunately, is to sit back and wait.”
While that may be true for new deals, current restaurateurs are pushing forward with everything they have to ensure they have a future.
“I’m just living to fight another day,” Fifty/50’s Weiner adds. “I’m not making money [right now], but I know we’ll be around to fight that next battle.”