After Prominent Closures, D.C. Restaurants Operating With 'A Sword Over Your Neck'
The food and beverage industry in D.C. has become one of haves and have-nots. But even the haves are still having a tough time.
The closures over the last week of a trio of established D.C. names — 3 Stars Brewing Company, Green Hat Distillery and restaurant Bad Saint — have led to shock and mourning on social media and among those in the industry.
Restaurant owners say business this summer has been slower than usual, and combined with an increase in costs, this is making it difficult for them to stay afloat. Some say they have been unable to pay their full rents, and others are hesitant about signing new long-term leases under difficult conditions.
Geoff Dawson, co-founder of restaurant group Tin Shop and proprietor of bars like Franklin Hall, Church Hall and the recently renovated Penn Social, said he's been in default on several of his leases at one point or another since the pandemic began.
"We thought, ‘Oh god, this is it. It’s over.’ And then immediately we would get a call and [our landlords] would say, ‘No, no, no, this is just to protect ourselves,’" Dawson said. "You’ve got a sword over your neck at this point."
Eric Heidenberger, owner of The DC Restaurant Group and proprietor of bars like Shaw’s Tavern and Madhatter, said fears of a recession are making him and other operators hesitant to agree to pre-pandemic rent levels when signing new leases in case the market faces a downturn and customers have less money to spend.
“The rent that D.C. landlords were getting in 2019 is not the same as 2022,” Heidenberger said. “Now you have the market that we're in right now and the fear of recession coming and it's like, ‘Well, what does the future look like?’”
Amid a slow summer for D.C., a new normal is slowly taking shape, one that relies on open space, residential submarkets and increased tenant improvement packages to keep restaurants serving.
"Frankly, overall, I'd say we've got a pretty solid restaurant market," said Bill Miller, co-founder and principal of Miller Walker Retail Real Estate. "This is just uncharted territory."
Among major U.S. markets, D.C. is middle of the pack in its restaurant recovery. D.C.'s number of seated diners in April of this year was down 26% compared to pre-pandemic levels, better than New York or San Francisco but worse than Boston, Chicago and Los Angeles, research from JLL shows.
This summer has been disappointing for some restaurant owners. Heidenberger said even in conversations with restaurant and bar operators on normally busy U Street, sales seem to be below what they were a year ago.
“Last summer sales were great, it was like the end of Prohibition, people were excited to go back out again and it was a better environment for restaurant owners to be in,” Heidenberger said. Now, though, “You're starting to get a lot of these sirens where the cost of operations is higher and there are fewer people coming out.”
Heidenberger has found ways to make it work. At Prost DC in Mount Vernon Triangle, he said 70% of his sales are coming from outdoor dining on a parklet. That model is shaky: D.C’s streateries program has been operating on a temporary basis, and Heidenberger said he’s meeting with the District Department of Transportation to advocate for making it permanent.
Even popular restaurants in good submarkets can fall prey to the new vagaries of Covid life.
Bad Saint, a Filipino restaurant on a busy strip of 11th Street NW, was ranked No. 2 in Bon Appetit's national list of best new restaurants in 2016, and in 2019 its then-chef, Tom Cunanan, won a James Beard Award. The restaurant announced Monday it had closed permanently, with co-founder Genevieve Villamora telling DCist that "these are really difficult conditions to operate under."
Villamora, in another interview with Washingtonian, cited Bad Saint’s small dining room and the weather-dependent nature of outdoor seating as factors hastening the restaurant's demise.
"I don’t know if people have that same level of comfort with people that they don’t know in a tiny, tiny space anymore," Villamora told the magazine.
Certain areas of the city are recovering more swiftly. While downtown and other office-heavy districts remain soft, the 14th Street corridor continues to be an active place, said Dochter & Alexander Retail Advisors principal and co-founder Dave Dochter.
But within those submarkets lie further particularities, Dochter said.
"Is it a well-positioned corner with good ceiling heights and outdoor space and appropriate infrastructure? You’re in a good place," Dochter said. "Are you mid-block with low ceiling heights? Then no."
Still, there are deals to be had. Dochter said tenant improvement allowances have risen from roughly $120 per SF pre-Covid to $150-$180 per SF today.
Landlords are also still looking for full 10-year leases with restaurant operators to spread out the rent costs and lock down a secure tenant. Miller, who represents both tenants and landlords, said he often advises the latter to keep good tenants even if they're struggling to make rent in the moment, because the alternative could mean vacancy for six months or longer and hundreds of thousands of dollars in legal fees.
"Keeping a good tenant is a smart financial decision," Miller said. "It's not an emotional decision, like I love this hamburger, it just would be not an intelligent one [to evict] if you want the dollars and cents."
The situation can be more complicated for brewers. D.C.'s brew scene has grown dramatically over the last decade, from six in 2011 to 15 in 2021. Last year, D.C.'s brewers produced nearly 30,000 barrels of craft beer and generated $193M in economic impact, according to the Brewers' Association.
3 Stars Brewing Company was one of the first on the scene, opening up near the intersection of Blair Road NW and Kansas Avenue NE. At the time of its founding in 2012, it was on the vanguard of D.C.’s local brewing scene, taking advantage of relatively cheap industrial space to sling saisons, IPAs and more.
But the times have changed. Rising ride-share costs have made it more expensive to access D.C.’s industrial neighborhoods that don't sit near transit stops, and the only bus line that came near 3 Stars limited operations to peak commuting times. Other brewery-heavy areas like Ivy City suffer similar transportation challenges, said Kimberly Bender, executive director of the DC Brewers' Guild.
“There are transportation issues to go out to industrial areas that I think we didn't really feel because Lyft and Uber are so prevalent,” Bender said. “It's almost impossible to use those services anymore in an affordable way.”
D.C.’s regulatory environment can also be difficult to navigate for breweries. Bender said brewers can either get a manufacturing license or a brewpub license in the District when they set up shop. Before the pandemic, those that had a manufacturing license couldn’t open up a tap room downtown to sell directly to consumers, limiting their ability to meet consumers where they are.
That restriction was temporarily lifted for alcohol businesses during the pandemic, Bender said, but has since been reinstated.
“The way that the law is written governing brewery licenses, they're very restrictive of what kind of models that they have, so that could be eased,” Bender said. “I do still think D.C. is a great place to open a business, [but] D.C. could be an even better place to open a business.”
The future health of the service industry may lie in policy, Heidenberger said. He said costs are up 30% to 50% compared to pre-pandemic levels. An initiative to raise the minimum wage for tipped workers, on the ballot in November, could add to those cost increases, he said.
Still, there are some things Heidenberger, a second-generation restaurant owner, continues to hold sacred. In June, he tweeted that $1 beer nights on Thursday at Madhatter, a Dupont Circle bar that first opened in 1981, would remain.
"We want people to still be able to come out and enjoy themselves," Heidenberger said. "We're busy on Thursday, and it's kind of like a give back to Madhatter to keep it going."
