National Restaurant Association Seeks More Funds: Are Restaurant Rents at Risk?

The coronavirus pandemic combined with mandatory restaurant lockdowns caused an upheaval in the restaurant industry. Many restaurants couldn’t withstand the shutdowns, and of the ones that could, some failed because of social distancing rules (of which 11 states are still implementing). Restaurants are now bracing for more trouble, as the Delta variant is keeping some would-be diners away.

The situation

In a sad state of affairs, restaurants are asking — or what some might call begging or pleading with — the government to help them stay open. Just as restaurants were starting to go back to business as usual, the Delta variant came on the scene along with an increase in food and labor costs. These developments have put many restaurants at risk, once again, of closing permanently.

The National Restaurant Association sent a letter to Congress on August 24 asking for money to help restaurants weather this latest storm. During the first iteration of COVID-19, restaurants in trouble from the pandemic were entitled to get help through a $28.6 billion Restaurant Revitalization Fund (RRF). The fund was designed to provide emergency assistance to restaurants and bars affected by COVID-19 so they could stay open.

But, no surprise, not all the restaurants that applied for the relief got any. There were 177,000 applications that totaled $43.6 billion, which is $15 billion more than what was in the fund. (A similar scenario happened with many landlords who tried to get help through a fund set aside for them during the eviction moratorium — a $47 billion fund was not properly doled out.) The National Restaurant Association believes it has the right to receive government funding since restaurants are struggling from “the government response to the pandemic.”

Survey results point to trouble for restaurants

The National Restaurant Association conducted a survey of 1,000 adults, and the findings showed consumer confidence levels for dining out have lowered. The National Restaurant Association is asking that Congress “complete the mission” by providing RRF funds to restaurants with pending applications and to replenish the fund so that all restaurants in need can get the help the fund was designed to provide.

Here are some findings from the survey:

• Because of the delta variant, six in 10 adults changed their restaurant usage, either by canceling existing plans, completely ceasing to go to restaurants, or opting for takeout or delivery. The rest of the respondents didn’t change their restaurant behavior.
• Mask mandates would hurt restaurants, as one in three adults would be less likely to go out to eat if they have to wear a mask. However, 25% of respondents said that a mask mandate would make them more likely to eat in a restaurant.
• Survey respondents were divided almost 50-50 on whether they prefer restaurant patrons to show proof of vaccination before being allowed to dine in a restaurant. (A lose-lose situation for restaurants. But since roughly half of Americans aren’t fully vaccinated, the pool of diners would automatically be diminished by requiring a passport. People who have been vaccinated can dine in a restaurant whether there’s a vaccine passport requirement or not.)

Financial trouble for restaurants means trouble for landlords too

Restaurant landlords can’t get blood from a stone, so to speak. If restaurants aren’t making enough money to pay rent, and if landlords aren’t willing to or can’t work out a new financial plan with restaurant owners, they’ll probably lose that tenant.

According to Nation’s Restaurant News, from March 2020 to March 2021, over 10% of restaurants failed. That doesn’t bode well for new restaurants to open. Dan Wu, who made the decision to close his popular ramen eatery, told The Counter, “Even if you found me the perfect piece of real estate, I don’t know if I’d open a restaurant right now.”

As a result of this terrible time for restaurants, many landlords, faced with possible vacancies, often need to lower rent. But not all landlords are able to do that per their agreement with their mortgage lender. Some landlords are using percentage leases, where tenants pay a percent of gross revenue, but not all want to or are able to make that arrangement.

The Millionacres bottom line

It will be interesting to see whether the RFF is replenished. If so, failing restaurants will be given a lifeline. If not, expect more changes in the dining landscape. Maybe there will be an uptick in furniture sales, though, as people will need dining room furniture for eating their delivered food.