Blair Papagni closed her first restaurant, Jimmy’s Diner in Williamsburg Brooklyn, last July, making the 22-seat pub-style eatery one of hundreds of New York City dining spots that fell victim to the crippling forces of the pandemic—forced shutdowns, bans on indoor gathering, and high rent costs.
“The most heartbreaking part about closing was having to lay off people that had worked for us for a decade and having to tell our three kids that we would no longer have the diner open anymore,” she told Gothamist.
Now, Papagni is trying to avoid a similar fate for her second restaurant, Anella, a popular brunch spot in Greenpoint that she and her husband opened in 2009. A big advantage it has over Jimmy’s is a lower rent. Her landlord renegotiated with her to take about 40% off the original agreement. That deal created an incentive to fight to stay open.
“One of the major reasons that Anella is able to be open right now is because I have a landlord that has decided to be a reasonable and decent person and has worked with me on the rent,” she said.
But there’s another reason Papagni is keeping Anella open: Closing it would be expensive.
“Closing a restaurant is not like closing up an office where you, you know, take your laptop with you, lock up the door and, ‘See you in two months’,” Papagni said. “A restaurant is like a living, breathing entity and there's a million different things that you have to do to close it—and that can go wrong when you close it.”
Restaurant owners across New York City have had to weigh the costs of remaining open—like building structures for outdoor dining and/or creating a more robust delivery/takeout operation—or permanently shutting down during the pandemic, as state officials have imposed capacity limits or outright closures. (Last month, Governor Andrew Cuomo reimposed a ban on indoor dining in New York City as coronavirus positivity rates increased.)
A decision to close means the owners must face their creditors and landlords. And yet the financial and emotional cost of closing a restaurant is a part of the industry that doesn’t get talked about much, said Stephen Zagor, who teaches Food Entrepreneurship at the Columbia Business School and is the former director of the Institute for Culinary Education.
“You'd like to be optimistic that the thing is going to do incredibly well and that your closing will be more of an exit strategy when someone comes in to buy you,” Zagor said.
But the pandemic has created a different reality for restaurant owners who are losing money at a much faster pace than it is coming in, as diners stay away and government restrictions on social gatherings remain in place.
For many of those restaurant owners, they can’t shut down until they’ve settled hundreds of thousands of dollars in mounting debts to landlords; meat and produce suppliers; and banks.
Many have maxed out credit cards, and Zagor said it’s common for some restaurateurs to just walk away without paying.
“They just close the door and walk away and say, ‘Chase me. I don't have any money.’ ”
He said there are also cases in which a restaurant owner collects deposits in advance of a catered party, but shuts down before the event and takes off with the money.
“The right thing to do is to return the deposit. But if you can't, you can't,” Zagor said.
A more common issue restaurant owners have faced during the pandemic is paying overdue rents on commercial lease agreements.
Before the pandemic, Zagor explained, many restaurant owners made agreements with their vendors to be personally liable for the money they owed on products, never anticipating a pandemic would force them to shut down.
But if the restaurant owner fails to pay her debt, the vendor can sue her personally to recoup their money, Zagor said. If the debtor doesn’t pay, it can have repercussions later on.
“And then if in 10 years you go to buy a car or you go to try to get a mortgage, there's going to be a lien on your credit for $2,000 from X, Y, Z produce company from 10 years ago,” he explained.
Last April, restaurateur Gabriel Stulman pleaded with New York City Council members to give a break to restaurant owners who were forced to shut down as a result of the pandemic.
At the beginning of the pandemic, he had nine restaurants. Today, he has three. The six that closed were all a result of losing money due to forced closures during the pandemic, he said.
Stulman said about half of his landlords were willing to work with him; the other half were not.
“I've had to pay to close some of my restaurants, considerable amounts of money,” Stulman said.
He declined to discuss the amounts he paid to settle his debts, but he said some owners of multiple restaurants may be more inclined to make good on their bills so that they can remain in good standing.
“If I buy vegetables from somebody and I'm closing restaurant A, restaurant B is still open. How comfortable is that person going to be delivering vegetables to my restaurant, B, knowing that I defaulted on debt at A restaurant?
“So, I might be more compelled to pay them because I still need to buy some more vegetables.”
The City Council in May and again last September voted to suspend personal liability lawsuits against restaurants. Those suspensions lift in April.