Dear landlord: Please ease lease squeeze in hot areas

Dear landlord: Please ease lease squeeze in hot areas

Soaring commercial rents, eviction proceedings and other lease disputes are endangering some of the nation’s most noted and acclaimed restaurants.

From renowned eateries like 20-year-old San Domenico in New York to 33-year-old Maddalena’s Continental Restaurant [3] in Palo Alto, Calif., many older and long-venerated independent restaurants are embroiled in rent hikes, landlord-tenant fights or eviction proceedings that could either force their proprietors to move or hang up “closed” signs.

While several restaurateurs blame outlandish landlord greed as the biggest threat to their businesses, also weighing on the besieged operators are the mixed blessings of gentrification. As yuppies or corporate interests take over what once were unappealing neighborhoods, operators who invested there 10, 15 or 20 years ago are being priced out of the communities they helped to revitalize.

Perhaps no group of independent operators is dreading the day their leases expire more than those in New York City’s superheated commercial real estate market, where even in neighborhoods that were no man’s lands just 10 to 15 years ago—like the Meatpacking District—high six-figure annual rents are common.

Tony May, founder of the award-winning San Domenico NY, anticipates that his rent could go up 400 percent next year, from $300,000 to $1.25 million annually.

Aware that his lease is set to expire next spring and sensitive to the large rent increases in commercial lease renewals that are hammering his Manhattan peers, May said he began calling his landlord four years ago to explore their mutual interests.

The goal of that dialogue was to have San Domenico NY [4] remain at its 6,000-square-foot, 138-seat address on Central Park South between Columbus Circle and Seventh Avenue with a workable increase in rent while his landlord reaped an appropriate rent increase based upon real economic adjustments in the 20 years since the lease was signed.

But May said he was stunned and angered when, without returning a single phone call over four years, his landlord gave him notice that he intends to increase San Domenico’s rent to $1.25 million a year upon renewal in April 2008.

“In New York, the landlords think the sky is the limit since they are not regulated in any way,” May said, adding that the city could use a Rent Guidelines Board to regulate commercial rent hikes the way it does residential ones.

“I know he has the right to charge as much as he wants,” May said. “But does he have the right to charge so much that it can put you out of business? I’m not saying it shouldn’t go up. But should it go up six times? Should they do what they want?”

May, a member of the Nation’s Restaurant News Fine Dining Hall of Fame, is not the only operator of prominence who is asking such questions.

While “going out of business” signs in bar and restaurant windows are hardly new fixtures, what is new is that increasingly they are being affixed to operations nationwide whose media buzz, traffic or pedigree would have seemingly made them immune to the pain of rent hikes.

In Philadelphia, brothers Robert and Benjamin Bynum—multiunit nightclub and restaurant entrepreneurs who had enjoyed a wildly successful, 10-year run with their flagship jazz supper club Zanzibar Blue [5] in the Bellevue Hotel—closed the venue in April after the landlord doubled the rent.

“We just didn’t think it was in our best interest to renew,” Robert Bynum told in explaining why the hotbed of national acts was shutting its doors.

Around the same time in May when Maddalena’s Continental Restaurant closed after 33 years, Wolfgang Puck’s 10-year-old Spago [6] in Palo Alto also closed after its rent was raised substantially.

In Pittsburgh, the Red Bull Inn, once a 20-unit chain started in 1964 and a precursor of today’s casual steakhouse brands, shuttered its last store following an eviction order after current owners refused to pay family members of the founder who owned the real estate a 60-percent increase in rent.

The storied, 116-year-old Merchants Cafe in Seattle’s Pioneer Square—one of the oldest restaurants on the West Coast and a survivor of earthquakes, riots and a sordid but rich history—changed ownership after the family that operated the joint balked at a stratospheric rent hike and lost eviction proceedings.

In Boca Raton, Fla., Wilt Chamberlain’s Restaurant [7], a sports-theme eatery with games and a basketball court started by the late NBA superstar of the same name, could close before the summer is out. The local operator owes $266,221 in back rent as well as unpaid taxes to the state of Florida. Meanwhile, the owners are suing the landlord for failing to fix a roof at the location at the Glades Road shopping center.

In Los Angeles, La Luna Ristorante [8], a 17-year-old community favorite in Larchmont Village [9]—a quaint and walkable stretch of small, independent and family-owned neighborhood shops along a section of Larchmont Boulevard [10]—is suing its landlord after the building owner allegedly offered the site to a prominent, high-end restaurant operation willing to pay a multiple of what La Luna’s owners could pay.

While David Mantelmacher insists that he is relieved to be operating in a suburb, free of the headaches and costs of operating in downtown Philadelphia, the bitterness still creeps into his voice when he discusses the loss of his award-winning restaurant Circa, which closed two years ago after a landlord refused to relent on a 400-percent increase in rent.

“The first thing people should understand is that landlords are not your partners, they’re not your friends,” he said. “Partners try to help you in your business. Landlords are only in it for the money, and they don’t care who pays the rent, as long as they get theirs.”

In 1993, Mantelmacher opened Circa in the 1500 block of Walnut Street in a one-time bank built at the turn of the century. The space still contained the original vault, which the restaurant converted into a coveted private-dining space.

Tall, cathedral ceilings, elaborate wall frescoes and other details made Circa an architectural and visual landmark, helping it thrive on effusive press in consumer, trade and culinary journals for its food and service.

Circa was a pioneer in opening in a block that would later become Philly’s official restaurant row, with such international neighbors of fine dining as Striped Bass [11], Le Bec Fin and Susanna Foo’s [12]. Even Le Colonial showed up for a few years before high rent prices led to its closure.

“I was so proud of that place,” Mantelmacher said. “I felt like I built it with my own hands. There was nothing like us in Philadelphia at the time. I had 75 great employees who just clicked with each other and the public.”

His rent was initially $100,000 a year. Eleven [13] years later, the landlord—seeing the revitalization of Philadelphia and the popularity of restaurants—raised the rent to $400,000.

When Mantelmacher could not negotiate him down, he closed the restaurant and opened a fine-dining restaurant, Plate, in the Philadelphia suburb of Ardmore, Pa.

“What really pisses me off when I look back on it is that the landlord didn’t put a dime into improving the property,” he said. “I did all of that. I offered him double what I was paying. But he wouldn’t take it.

“He said he needed to quadruple the rent because he needed to feed his family.”

But in Mantelmacher’s loss, there is also pride.

“Philadelphia was nowhere near what it is today in terms of its cachet and appreciation of restaurants,” he said. “I’d like to think we were pioneers in establishing what Walnut Street has become. But I couldn’t sustain that kind of hit in rent, and yet my own success was the reason I was going out of business. If anything, it just speaks to how hard this business is and how difficult it is to control your fate if you don’t own the land.”

Declining to reveal his sources other than to note that he has “good inside contacts,” Mantelmacher said that a unit of The Sharper Image, the retailing chain of high-tech household and recreational products, took the $400,000 lease to Circa’s site and is already in trouble.

“I know for a fact they are doing nowhere near the volume we did selling food,” he said. “But do you think the landlord cares?”