Before the pandemic, Yeworkwoha Ephrem paid $9,800 a month in rent for her Ethiopian restaurant Ghenet, in Brooklyn’s Park Slope. But after COVID-19 shut down the city in March, Ephrem said she wasn’t able to pay her landlord. Unlike other restaurants, she could not build a sidewalk dining space and said there weren’t enough deliveries and takeout orders to bring her business back to anything resembling normal.
“I really felt guilty,” she said, sitting in her empty restaurant that used to be able to host up to 65 people.
Ephrem qualified for a small business loan and federal aid through the Paycheck Protection Program (PPP) to pay her nine remaining employees (she said four left on their own). In the summer she approached her landlord about paying rent. “I ask him if I can give him $6,000 otherwise I will have to close,” she explained. “He agreed with that.”
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But she said it’s still a big stretch. The 75-year-old restaurant owner said she cannot take advantage of even limited indoor-dining starting this weekend because she’s got diabetes and fears for her health.
“Right now no money’s coming to me, absolutely no money’s coming to me,” she said. “Everything I’m doing is for the employees and the rent to keep the restaurant open and going.”
With substantially fewer customers, stores and restaurants all around the city haven’t been able to pay the rent. No one knows exactly how many have closed, from the Record Mart in the grungy Times Square subway station to neighborhood dry cleaners and a favorite Thai restaurant in Jackson Heights. There are estimates that at least 4,000 closed permanently by the middle of last September, based on Yelp listings. And the moratorium on commercial evictions expired last month.
To help these businesses, Albany lawmakers are considering legislation called Save Our Storefronts. It would apply to those with 25 or fewer full-time equivalent employees that can document losing more than half their revenue because of COVID-19.
For these qualifying businesses, landlords would reduce their monthly rent by 20%. The tenant would then pay up to one third of that new, lower rent. The state would use a new $500 million fund to pay the landlord the difference, enabling them to get 80% of their normal monthly rent.
For Ephrem, that would result in paying about $2,500 a month — much less than the $6,000 she’s now contributing, and which still is not the full rent.
“At least I will be able to pay myself a little bit,” she said, if the law is passed. “I’ll be able to come up with different dishes like I used to do.” Ephrem had cut back on meat entrees to save money.
Her landlord, Pedro Rodriguez, said he supports the proposal in Albany. His family has owned the building on Fourth Avenue and Douglass Street since the 1970s, and he said Ephrem has been faithfully paying since she leased the space in 2007.
“It’s going to help us and it’s going to help the tenant as well,” he said, after reading about Save Our Storefronts. Receiving 80% of the rent is better than the 60% he is currently getting, he said, and enough to help with expenses.
“I have light, gas, taxes on the building, maintenance on the building,” he explained.
But Rodriguez wonders how long he would have to wait to be reimbursed by the state for the rest of his rent, and if the process would become too complicated.
The Real Estate Board of New York is raising similar questions.
“We support aid to small businesses,” said Paimaan Lodhi, the Real Estate Board of New York’s senior vice president of policy and planning. “We support direct aid to small businesses. This bill is overly complicated and seeks to modify leases and that’s not necessary. The most impactful thing that the legislature or governor could do is provide direct relief to small businesses.”
REBNY also issued a report last month finding eight retail corridors in Manhattan experienced their lowest average asking rents in at least a decade after the pandemic struck, another bad sign for landlords.
Save Our Storefronts was proposed last year by Assemblyman Harvey Epstein and Senator Brad Hoylman, both of Manhattan, and it never advanced. But the sponsors believe they have a better shot now because New York could get more than $23 billion in federal aid from the Biden administration, which can be used to set up the $500 million fund.
“Last year, we didn't have the federal dollars to do it,” said Epstein. “This year, it looks like we're more likely to have federal dollars coming in and potentially have additional state revenue.”
He noted that progressives are urging Albany to raise taxes on the wealthy and Democrats now have a supermajority in the state senate. Legislation has also been proposed to extend the moratorium on evictions for commercial tenants and provide additional help for small businesses.
Epstein acknowledged landlords would “take a haircut” by being required to lower their rent by 20%. But he said they’d still get 80%, which is more than many tenants are currently paying.
“It's not full compensation, but just compensation and what's necessary to ensure that they can continue to have the commercial tenant,” he explained.
Some have raised concerns that landlords could sue if they believe the government is violating the Constitution’s protection against taking property without just compensation.
As for concerns about the paperwork, Epstein said businesses are now in tax season, and figuring out how much money they lost. He said that should make it easy for them to submit qualifying paperwork. If the legislation makes it into the state budget, which is due on April 1st, small businesses could be compensated quickly. And he said conversations continue about whether it might make more sense for landlords to apply on behalf of their tenants.
Boosters of Save Our Storefronts see one other upside: a “reset” for commercial rents.
“Making a living as a small business owner or a restaurant in a big restaurant in New York is almost impossible now because of the outrageous rents,” said Linda Pagan, owner of The Hat Shop NYC in SoHo and an organizer with Save Our Storefronts.
“People went out of business very quickly because they were barely making it,” she explained, pointing to big retailers in her neighborhood such as French Connection.
Pagan wouldn’t disclose the monthly rent for her small shop, but said she was not able to pay anything from March to June while she was closed. Those are the peak months for selling high-end hats because of graduation ceremonies and Derby Day parties. Pagan said she got a small business loan and PPP aid and started paying half her rent later last year.
“My landlord saw that as a sign of goodwill. But we haven't come to an arrangement about the back rent.”
Tenants are still on the hook for the rent they owe, even if the eviction moratorium is extended, as some lawmakers have proposed.
If approved, Save Our Storefronts could also help businesses that did not qualify for federal pandemic help. Tomislav Kajic had to delay opening his new Astoria restaurant Hutch until October, and said he has barely gotten any customers since the weather turned cold. In January, his state senator, Michael Gianaris, visited to talk about the proposed legislation.
“I really wanted to believe him, that it was important to get this done,” said Kajic.
He claims the senator said he would order food from Hutch the next day, but he never saw that order come through. He’s dubious about help from Albany, saying it would be a “huge surprise that the government actually does something for us for a change.” But he’s still holding out hope.