By Eric Uhlfelder
Michael Stewart, owner of Tavern on Jane, is as community a proprietor can get. His cozy, very friendly restaurant not only makes patrons feel at home, but Stewart sponsors free events for the neighborhood, hosts exhibitions of local artists, contributes to various causes, and his prices are a decade behind those of the trendiest West Village cafes. But he’s bleeding cash in his fight to survive COVID.
Remember what it’s like being stuck in a cab, going nowhere and watching the meter relentlessly turning into an absurd fare even when just going across town?
Now imagine what’s it like knowing that just opening your business’ door every month costs in excess of $160,000 and a rapidly spreading pandemic has just shut it.
That’s one heck of a ride that Michael Stewart and all other restaurant owners have been on ever since the city closed them down in March when New York was in the throes of a deadly viral outbreak that was killing 2,000 souls every day.
“We’re in a lot better place than then, especially financially, when all I could offer patrons was take-out,” says Michael. But the late fall is bringing a severe challenge: outdoor seating will decline along with the temperatures, the Congress continues to fail at passing a follow-up relief bill, and now rising COVID cases may prevent the city from allowing food establishments to bump up indoor occupancy from 25 percent to 50 percent.
In fact, if transmission rates continue to rise, Stewart is facing the possibility that even his limited indoor dining will again be shut down.
And if all that isn’t enough, retailers, whose busiest time of the year is December, will find the month a bust, followed by lackluster sales that always follow New Year’s Day.
Stewart estimates he has lost about $1 million in sales since the pandemic first struck—that’s a little less than half of his typical annual gross income. And he estimates that as of early November he was losing several thousand dollars a week.
When I sat down with Michael in Tavern’s private dining room to better understand what a restaurant owner is going through, he was frank: “I really love being a part of the community. I’m trying like heck to weather this financial storm. I haven’t taken a salary since March. But I’m 63. I opened my doors 25 years ago, and it’s not like I was making a fortune even when times were normal. That wasn’t my goal. But now my life’s savings are bleeding away at a time when I should be putting the final touches on my retirement nest egg. And if winter turns really rough, I can’t say how long I can keep my tavern going without taking on extensive personal debt.”
What so many economists and policy wonks miss in their projections about COVID and business is all the sweat and (personal) equity being destroyed because of an unforgiving marketplace that fails to take into account an event for which no one is to blame—save for government officials who hid from us the dangers we were to face.
After spending several years in Los Angeles in the late 1970s and early 1980s as a would-be actor and writer, Michael, a native Raleigh, North Carolinian headed east to New York—a place that had always appealed to him since he was young. What he brought with him, in addition to his actor’s looks and affable demeanor, was several years of experience managing the iconic West Hollywood Café Figaro and a friendship with Horton Foote Jr., the son of playwright Horton Foote.
“Since we met in 1978 we became good friends, and we both ended up in NY and decided to open a restaurant,” recalls Stewart. For those old enough to remember, they took over the space formerly occupied by the Jane Street Seafood Café at the northwest corner of Jane Street and 8th Avenue.
In 1995, when the owners of the seafood joint decided they needed more room than the restaurant’s 1,400 square feet, Stewart and Foote took over the lease, invested $75,000, and changed the New England ambience into more of a traditional tavern feel with a long mahogany bar, active front dining area, a quieter rear space that feels more like a railroad dining car, and a splendid semi-closed room for private parties. The initial rent was $6,500. Today, it’s $31,000.
“The building owner forgave rent for the first three months of the pandemic through June,” explained Michael. But he still had to pay building carrying costs. Takeout sales from his faithful clientele only generated about 10 percent of normal sales.
The passage of the federal government PPP Act provided Michael with $212,000 to cover payroll and other operating expenses. He kept his 25 employees, more than half of whom have been at Tavern for more than a dozen years. But the government required the loan to be spent within two months for it to be forgiven. That didn’t make much sense to any retailer because they knew COVID wasn’t disappearing in 60 days, and there was uncertainty about future government assistance. And just weeks before Michael dispensed the final portion of his loan, the federal government, in its infinite wisdom, decided to extend the spending period to six months.
This action was one of several government SNAFUs that challenged proprietors. Besides having virtually nothing left of the loan as of early summer, Congress and the president bungled the passage of any additional stimulus packages—in spite of severe restrictions on indoor occupancy to 25 percent of capacity. Tavern was permitted 18 clients inside compared to a possible 74. Yet in July, Michael’s rent resumed in full.
Then, after sinking $15,000 into setting up his outdoor seating, the Department of Transportation decided to further muck things up. According to Michael, after DOT signed off on his 40-seat plan for Jane Street, it then issued him a cease and desist order to remove the 28 seats that were actually on the street. Apparently, the city had not formally closed this block of Jane Street for outdoor seating.
It took three costly weeks before Michael could get the mayor’s office to sort things out. But even with good weather, he estimates he’s only making little more than half his normal take and still losing money.
To keep his business open, Michael was forced to take out a $150,000 loan from the Federal Small Business Administration. With overnight interest rates for banks being virtually zero, one might think this shouldn’t be too much of a burden. Except, the rate is four percent for individual borrowers. On the positive side, no payments are due for the first year.
When the money from the loan is exhausted, Michael will have little choice but to dig into his savings. “Banks aren’t lending to restaurants,” he says, “because our futures are so uncertain.” And the same doubt applies to potential equity partners, who would likely want a sizable discount for a chunk of the business.
Many blocks in the West Village are half vacant. And by mid-winter, don’t be surprised if the bulk of what’s left are drugstores, banks, grocery stores and bodegas.
So, for anyone who still thinks that COVID is just like the flu, think again.
If you want to help Michael, come by for lunch or dinner. And if you’re inclined, visit his Go Fund Me page: https://www.gofundme.com/f/tavern-on-jane-covid-relief-fund.
Eric Uhlfelder writes about finance for The Financial Times, The Wall Street Journal, and The Economist.
One Way Government Can Help Save Retail
When the city was shut down earlier this year, the true value of retail space was what it provided shopkeepers as a place to hold inventory. But commercial tenants’ contracts didn’t change. Today, with business demand stifled and tourism nonexistent, the market value of most storefront rents should be no more than one-third of what they were—if that. But landlords are still demanding their full nut.
The federal government should enact a rent forgiveness program that would shift all financial liability to its coffers. This is how it could work:
Retail tenants should pay no more than 33 percent of their lease rate until the immediate commercial effects of the pandemic are over. If landlords own their buildings outright, they should be given a full tax credit for all rental income lost. They would deduct this amount from taxes they will owe over the next three to five years. If landlords hold a mortgage, their monthly mortgage payments would in turn be forgiven at the same rate as tenants’ rent breaks. The bank (or other financial entity) holding the mortgage would in turn enjoy the same tax credit described above.
This approach would pass on liability to the economy’s strongest financial entities and, ultimately, to the government—which could finance these expenses through cheap borrowing. This process would preserve existing retail operations so they could reopen in earnest once the pandemic is under control. This would ensure the quickest recovery.
Forcing successful businesses to fail would be a heavy drag on economic recovery once the threat from COVID has subsided.