First, famed New York City chef Wylie Dufresne announced he’s pulling the plug on his Lower East Side landmark wd~50 at the end of November. Then Danny Meyer, CEO of Union Square Hospitality Group, said he’s moving Union Square Cafe to an alternate location when his lease is up at the end of 2015. Why? Because neither can stay where they are and make money.
After 11 years in the same spot, developer Icon Realty Management plans to put up a new building on the site of wd~50. In an interview with the New York Times, Dufresne admitted that he wouldn’t be able to give customers the same experience if the restaurant were on a construction site. For Union Square Cafe, it came down to the dollars; Meyer is unwilling to pay the proposed rent increase, which Julian Hitchcock, a New York real-estate veteran, put at around $650,000 a year in an interview with Grub Street. This deal-breaking hike in rent is a similar tale told by many independent New York restaurateurs of late. Soup Burg on the Upper East Side, for example, says it closed its doors in June after 10 years in the same location, because the landlord wanted to raise rent exponentially.
The tenant-landlord battle hit an extreme this July when New York City-based P.J. Clarke’s filed a $40 million lawsuit against Brookside Office Properties, the landlord at its lower Manhattan unit. The suit asserts that the landlord “engaged in a long and deliberate campaign” to force the restaurant out of its space, which it perceived as an effort to replace the saloon-style concept with another tenant that would be charged more in rent. It claims the landlord, that previously has declined to comment in public, went so far as to cut phone lines and allow leaks to get rid of P.J. Clarke’s, but the restaurant is not willing to be bought out of its 15-year lease just yet.
It’s not just New York that’s coping with rent hikes. The Grove, a high-traffic cafe concept in San Francisco, shuttered its original store last June after the landlord pushed for a rent renewal that was 50 percent higher than what The Grove agreed to pay five years prior. And instead of coping with a rent increase, Bin Wine Bar in St. Paul, Minn., opted to lock its doors after the five-year-old restaurant’s lease expired this June.
As landlords continue to raise rent at an alarmingly fast clip, it’s becoming more difficult for operators to abide by the Golden Rule of 10—never let rent exceed 10 percent of your gross profit, says Bill Post, restaurant consultant and co-founder of the Chicago-based Roti Mediterranean Grill chain. So if negotiation is out of the question, the option remains: close, relocate or eat the cost.
Chances are Danny Meyer’s Union Square Cafe will be fine, but for others, the fate is not as clear. Twist Tapas, for example, relocated after 12 years in Chicago’s Lakeview area, because the new landlord opted to redo the storefronts. The cost to Twist: One of its co-founders bailed, unwilling to make the move.