Restaurant Industry Fears Mass Closures, Asks State For Lifeline After Governor Closes Bars, Reduces Capacity

The Texas restaurant industry is begging state lawmakers to issue financial aid to struggling restaurateurs and bars as small businesses battle a second financial setback in the fight against the coronavirus.

With the state's positive testing rate for COVID-19 rising above 10% this week, Texas Gov. Greg Abbott issued an executive order Friday, mandating all Texas bars close by noon and rolling back maximum dining capacity levels in restaurants statewide to 50%. Prior to this announcement, restaurants had reached Stage 3 of the state’s reopening plan, with 75% capacity levels allowed.

The governor's mandate forces establishments receiving more than 51% of their gross receipts from alcoholic beverages to shutter their doors for an undetermined amount of time — no date or triggering mechanism to end this closure was announced — limiting their potential revenue streams to delivery and takeout.

While restaurateurs and retail landlords in Houston and Dallas-Fort Worth told Bisnow they believe the mandates are the right move for public health, the news hit the already vulnerable restaurant community hard, prompting the Texas Restaurant Association to demand $390M in stimulus from federal CARES Act funds allotted to the state of Texas.

Without a dose of aid in the form of grants from the state, the association fears more restaurant bankruptcies and permanent closures.

“I’m afraid we are currently projecting 30% of our restaurants could close,” Texas Restaurant Association CEO Emily Williams Knight said. “We will see what the next couple of weeks will bring, but that number could accelerate. I don’t think the 50% [capacity adjustments] alone will be the driver. I think it is part of a much larger puzzle."

The industry is already reeling from having no relief in the form of foreclosure aid, business interruption insurance or liability protection to fend off coronavirus-related litigation, the TRA said. Restaurants also are footing the bill on rising food prices and exorbitant delivery costs.

“If we don’t have other elements of a survival plan that come to this sector quickly, you will see a mass number of closings,” Williams Knight said. “We have already seen closings accelerate.”

The federal government's Paycheck Protection Program and the amended Paycheck Protection Program Flexibility Act kept many restaurants going when the coronavirus first landed in Texas four months ago. But there isn’t enough PPP money left to keep bars and struggling restaurants running interminably without more aid, Williams Knight said. 

“That money has run out for a number of restaurants,” she noted. “We need a second influx of using the Paycheck Protection Program as the vehicle of funding to these restaurants and bars to help them survive.”

Restaurants already took a sharp financial hit having to retrofit their spaces to deal with social distancing guidelines and enhanced cleaning measures, the TRA said. Even before the governor's announcement Friday, the fate of many restaurants was in question. 

“These are small-business owners. They don’t have the cash or capital,” Williams Knight said.

Texas Restaurant Association Vice President of Government Relations and Advocacy Kelsey Erickson Streufert said the state and local governments have enough overflow aid to distribute to restaurants and bars, and now is the time to do it. 

“[The state] got $6B from the CARES Act, our local communities got another $5B,” Streufert said. “It’s time to start sharing some of that money with the frontline of our economy or small businesses are not going to be there to get us through this crisis.”

The TRA is asking for roughly $390M in grants to assist bars and restaurants statewide. This burden must be shouldered by the state government, with federal policymakers likely to remain recessed until late July, Streufert said. 

“I think one of our biggest concerns right now is we can’t see the bottom,” she added. “We don’t know how long this is going to last. We don’t know when we are going to have a spike or get out of this current spike, so I think one of our key messages to policymakers today is we have got to continue the forward momentum, not necessarily with expanding occupancy, but with relief and recovery efforts.”

Satya Inc. CEO Sunny Bathija, whose firm owns retail centers across Houston, shares many of the association’s concerns.

“I think the move is right but I think instead of closing down the bars we should have limited the capacity,” he said.

Bathija called the decision “drastic” and said it will impact landlords.

“The restaurant and bars will eventually come back to get relief from the landlords. This may also drive some of them to close down permanently,” he said. “There is no way restaurants can stay in business for a long time operating at 50% capacity.”

The lack of end date on the mandate also worried him.

“It is a wait and watch game now to see when they can open again and increase their seating capacity.”

Restaurateur Marcus Davis said that like other small businesses, The Breakfast Klub, a popular restaurant he founded and runs in Houston’s Midtown neighborhood, has been affected by the lack of leadership shown at both the state and national levels, as officials chose to reopen restaurants, bars and retail stores early and ignore the risks of the virus.

Davis told Bisnow that even when Abbott’s initial stay-at-home order expired on April 30, he didn’t rush to reopen his doors for dine-in customers.

“We didn't act immediately, we didn't take the 25%, we didn't jump on the 50%. When they [went to] 75%, then we moved to allowing the dining room to be occupied,” Davis said.

Texas allowed restaurants to operate at 75% occupancy on June 12. In light of the new rollback to 50% occupancy, Davis is considering closing his dining room again.

“I mentioned to my staff already that we're more than likely going to go back to takeout and online ordering, and leave some tables and chairs outside,” Davis said.

He said that rather than reopening at 25% or 50%, Texas should have waited longer, and then, when it was safe, reopened at a higher percentage. Now, the state is paying for it.

“I'm not naive enough to believe that we can 'to go' our way out of this. I'm also not of the opinion that we can 25% to 50% our way out of this,” Davis said.

“So either we've got to get serious about bringing this thing to a halt, or not.”

Gerald Crump, director of the central region at retail landlord Weingarten Realty, said most of the company’s restaurant tenants have been accustomed to operating at the 50% threshold, and are doing a good job of leveraging the curbside and delivery options that are available.

“No one in the industry wants to see the occupancy levels reduced, but this may be what’s necessary for the time being to get the case count back down to acceptable levels and the consumer back supporting the business,” Crump said.

Weingarten owns, manages, acquires, develops and redevelops shopping centers around the U.S., and has 59 properties in Texas alone, according to its website. Crump said Weingarten’s shopping centers do not have many bars that don’t already have a significant food offering.

“I certainly think there are many who are adhering to the guidelines and should be allowed to operate at some capacity. There are, however, bad actors in the industry who should be shut down, as we have seen over the past couple of weeks,” Crump added.

Restaurateur Nick Natour, owner of West Plano-based Mignon, has been in business for 20 years and also said he supports the governor's order. Natour said his restaurant is already practicing appropriate social distancing and spacing between tables, and he supports efforts to stomp out the virus.

“Most definitely, it is needed,” Natour said. “It seems we've had more cases come up on a daily or weekly basis. Our clients and employees in the back of their minds, they want to keep a distance from each other, so we have to do that [social distancing and spacing] no matter what.”

Natour said closing bars temporarily is wise given the number of young people frequenting these spaces, and the recent rise in coronavirus cases among a younger population of Texans. 

“The younger generation, it seems to me they are not responsible enough and they are not taking it as seriously as they should, so I think closing the bars will be an excellent idea,” Natour said. 

Beck Ventures CEO Scott Beck said as a landlord he already prepared his retail and restaurant-focused tenants for a roll-back order. Beck Ventures proactively augmented rents with certain tenants and went beyond a 90-day period in their negotiations, foreseeing a possibility that tenants and landlords could face viral outbreaks throughout the remainder of the year. 

“What we did with our banks, which are our lenders, and what we did with our tenants, is we went ahead and planned that this was the new normal for the rest of the calendar year,” Beck told Bisnow. 

As someone who feels mask use and appropriate measures are the only way to really get everyone back in business, Beck supports the governor’s new mandates as a landlord. 

“I am encouraged by what the mayor of Dallas has done, and I am encouraged by what the governor is now saying, which is [wear] masks in public,” Beck said. “I think the most [important] single thing that everybody can do is to wear a mask; and to the extent that we don’t wear a mask, we will continue until we have a vaccine to have the yo-yo effect.”

UPDATE, JUNE 26, 4:17 P.M. CT: Comments from Satya Inc. CEO Sunny Bathija have been added.