When the rent was jacked up at Beatrice Arredondo’s Havana Dreams restaurant in Doral, Fla., a year and a half ago, she decided to look for cheaper digs in another area of town. She moved about 15 minutes east to downtown Miami, where she sought to take advantage of a lower rent, a thriving daytime business population and, key to nighttime business, a growing condo population.
Arredondo admits that her timing was far from perfect. As she was moving in, the area’s condominium market was collapsing and the number of home foreclosures across South Florida was skyrocketing.
Today, Arredondo wistfully views a handful of condo projects halfway completed just across the street from her 50-seat Cuban restaurant. That situation is mirrored across pockets of Florida as the state suffers from the third-largest number of foreclosures nationwide.
The most recent numbers from the American Banker’s Association paint an especially grim picture of the country’s fourth-most-populous state. As of June, nearly 14 percent of Florida homeowners were behind in their mortgage payments or faced a loss of their property, compared to 9.2 percent of mortgage holders in a similar predicament nationwide.
According to RealtyTrac, an online foreclosure website based in Irvine, Calif., one in every 186 Florida properties received a foreclosure filing in July, pushing foreclosure activity up 14 percent over June and 139 percent over July 2007.
RealtyTrac, which tracks 230 metropolitan areas, also reported that in July bank repossessions in Florida increased 678 percent year-over-year. Lee County, which encompasses Cape Coral and Fort Myers, recorded the highest foreclosure rate, with one in every 64 homes in foreclosure, seven times higher than the national average.
Other especially hard-hit areas include the Florida counties of Miami-Dade, Broward, Palm Beach, Orange and Hillsborough. In four South Florida counties alone, consumer bankruptcy filings in August were up 60 percent over August 2007, according to the U.S. Bankruptcy Court for the Southern District of Florida.
For many years, Florida was considered the land of plenty, with close to a net gain of 1,000 people daily, according to the 2006 Florida Trend archives. The Sunshine State’s cheap housing, warm weather and lack of income tax were among the main attractions.
In recent years, however, housing prices have been pushed up by easy credit and investor speculation, and insurance rates have risen significantly because of a spate of hurricanes. As the credit markets collapsed, Florida’s fortunes tumbled with it.
According to Miami-based Florida International University’s Research Institute on Social and Economic Policy, in 2007 “the Florida boom began to go bust, with rising unemployment and stagnant wages signaling hard times ahead for workers.”
Bruce Nissen, one of the authors of the study, titled “The State of Working Florida,” noted that the bust would also hurt the restaurant industry.
“Just as Florida did better than the nation as a whole during the housing bubble from 2001 to 2006, it will unfortunately end up doing worse than the nation as a whole during the downswing following the bursting of the housing bubble,” he said. “And the restaurant industry is not likely to be immune to the downturn.”
Restaurant operators already are feeling the pain. Restaurant closures and bankruptcy filings have become common at chains and independents alike.
Steven Zuckerman, an expert in distressed properties with Farlie Turner & Co. in Fort Lauderdale, blamed the tightening credit markets.
“There used to be easy money, and it is no more,” Zuckerman said. “We called it ‘covenant light loans.’ That liquidity acted as a crutch to many, but when it disappeared, we really started seeing a lot of the fallout.”
The tough times have forced many operators to change their business models.
Earlier this year, chef Allen Susser saw sales at his namesake fine-dining restaurant in Aventura fall 20 percent, prompting him to take action. Susser invested $100,000 to refresh his restaurant. He also introduced a more causal menu offering seafood in a variety of plate sizes and several appetizers, snacks and sides.
“We were always fine dining, but we had become more stuffy than I had ever intended,” he said. “I felt that in Florida we can and should be more casual. As it got quieter, I knew I didn’t want to be another statistic. I am seeing people close all around me, so I made some big changes.”
He lowered his prices for both food and wine. Entrée prices dropped from a range of $32 to $45 down to $22 to $30. The average check dropped from $80 to $60.
“Now people can come by for everyday eating, instead of just for special occasions—and so far so good,” he said. “With the lower price points we have significantly increased volumes, so we are making up on the lower checks.”
At three-unit Deli Lane Café in South Miami, partners Mike Maler and Jan Kircher say the concept’s perceived value helps boost comps a bit.
“We offer good food for exceptionally reasonable value,” Maler said. “In these times, we know that is important, as we’ve seen five or six places nearby close.”
The restaurants are open for lunch and dinner, and average checks are around $9. The pair opened their first unit in 1988 and a second Miami location in 1994. A third location opened this year in Sarasota.
“We give a better bang for your buck here, and that is what people today are looking for,” he said.
Some operators in Boca Raton say business has not been hampered by the state’s economic woes because of the area’s affluent population. Matteo’s, part of a nine-unit family-style Italian restaurant chain based in New York, is one of them, said manager Giuseppe Viscito.
Matteo’s family-style dinners can serve two to four people and have an average check of $30 to $35. Despite Viscito’s contention that the area is immune to the economic slowdown, he noted that several nearby restaurants have recently closed.
Other operators are finding ways to drive traffic.
Atlanta-based Buckhead Life Group opened its Chops Lobster Bar just around the corner from Matteo’s last year. While business is good, officials recognized that the economy has changed many consumers’ spending habits. So Chops introduced a three-course meal for $49. Paul Baldasaro, chief operating officer, said liquor and wine sales have gone up, so the check average has remained around $70 to $75.
Chops also debuted a Martini Night, an upgraded sound system and a bar menu, resulting in a 15-percent incremental gain in the bar business.
“I believe this gives an approachability to Chops that might not have been there before,” Baldasaro said, “and the response has been great.”
Buckhead Life also is moving ahead with plans to open City Fish Market in Boca Raton in October. The average dinner check of $38 to $42 will be significantly lower than that of Chops, Baldasaro said.
Back in downtown Miami, Arredondo of Havana Dreams is doing everything she can to get people to try her homemade Cuban fare. That includes daily specials for $6.95, fliers disseminated in the local business district, and a delivery program. Havana Dreams also offers live Cuban music on the weekends.
“Everybody is slow these days, but downtown is supposed to be where the people are,” she said. “But the people aren’t really here, except on Friday and Saturday nights, when we have live music.”