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Seasoned commercial real estate broker John A. Asadoorian says the restaurateurs with futures in D.C. recognize we’re not going back to the before times once the coronavirus pandemic lifts. “The longer we went through the period of uncertainty, the more separated we became from the momentum of the market before COVID,” says the Southeast D.C. native and founder of Asadoorian Retail Solutions. “The people who are going to last are people who understand this is a new market. It’s a new economy.”
Asadoorian represents both restaurants and retailers looking to set up shop and landlords marketing their spaces to tenants in the most competitive neighborhoods in the city. He can make educated guesses about the future of D.C. dining with the caveat that the uncertainty of the pandemic still clouds predictions. “There are a lot of smart people out there who are smart enough to realize we know nothing,” he says. “We’re all suffering through changes no one anticipated.”
In his 35-year career, Asadoorian has weathered three resets following economic hardships—a recession in the early 1990s, the aftermath of 9/11, and the 2008 Great Recession. When the District emerged from the latter, D.C.’s 12-year restaurant renaissance began. “It was a proverbial fire hose we were drinking from,” Asadoorian says. “If you didn’t open a restaurant at Union Market, Capitol Riverfront, the Wharf, or 14th Street [NW], you were going to miss out.”
During this period, he says “everyone who knew how to eat food” set their sights on owning a restaurant. “Just because you were a sous chef with a tattoo and a cool story, you could open a restaurant and be successful,” he says. “Or, just because someone took pictures of your food and put it on Instagram, you were successful.”
People passed around small plates with abandon. Chefs “elevated” common fare or made fancy food “approachable.” Cocktails arrived at tables smoking from liquid nitrogen. Edison bulbs cast broody light inside speakeasies with websites. Servers shared chefs’ life stories. Blistered shishito peppers sustained the happy hour crowd. Restaurateurs planted “concepts” down alleys. A meal was “an experience.”
In this crave new world, some diners became accustomed to chasing tables at the hottest restaurants. They worked their way down a checklist and documented their conquests on social media. Dinner was way more than sustenance.
“That habit was broken when the music stopped,” Asadoorian says. “People now are less accustomed to going out to be entertained because they’ve been eating at home. They’ll come out in droves once they can because they’re bored, but they may not go out the same way.”
When D.C. fully reopens, Asadoorian predicts diners will be more discerning and may visit restaurants helmed by chefs they love more often. Where loyalty was fleeting before, the pandemic spurred Washingtonians to step up and support the restaurants in their neighborhoods to ensure their survival. Not all of them made it and more closures are expected once the District’s eviction moratorium lifts. “There’s going to be fewer restaurants, but they’ll be better,” Asadoorian hypothesizes.
City Paper spoke with local restaurateurs hoping to expand their existing portfolios and become a bigger part of D.C.’s post-pandemic restaurant scene. They’re quoted anonymously as chefs and owners don’t often disclose what they’re cooking up until leases are finalized. While their insights contain clues, their experiences cruising for commercial real estate are vastly different making it tricky to draw conclusions.
A restaurateur we’ll call Drew just turned down a generous deal from an international developer with a few buildings in D.C. The property owner offered to fund the build out of the restaurant and only collect a percentage of the restaurant’s sales until the construction costs are repaid. Then the restaurant would be on the hook for more standard rent payments.
“The biggest problem for landlords is there are a ton of properties, but not a lot of access to capital for restaurateurs,” Drew says. Absent significant aid from the federal government, the pandemic bled many restaurant owners dry. “Everyone’s gotta figure out interesting ways to get deals done because so many properties are sitting empty.”
According to Drew, some landlords share an asking price and, in the next breath, say they’re willing to go down by almost half. “If you have access to capital right now, Jesus Christ, this is the time,” Drew says. “Fifteen or 16 properties have approached me on social media. The new way to reach out to a tenant is on fucking Instagram!”
Drew surmises they’re being courted heavily because they have “such a proven concept that’s working in this environment.” Landlords, Drew says, are seeking sure things. “If I was a fine dining Georgian concept, no one is going to take a bet on that … There are going to be less esoteric concepts opening for a year or two, which is a shame.”
Asadoorian calls this notion an overgeneralization. “Whether it’s a banker lending money, a broker spending time with a client, or a landlord, they’re going to look for someone with a business plan that works,” he says. If you’re looking to open “a gluten-free Cambodian restaurant that specializes in vegetarian food,” for example, the landlord will want to see air-tight financials. “They’re not going to be rude, but they’re going to look at it more closely.”
He says the risk calculation for boundary pushing, untested restaurants has changed since the pandemic. “A year ago, [landlords] would say, ‘Sounds cool! Edit Lab’s designing it? You’ll pay twice the market rate? Done!’ Now, people are going to be like, ‘I really like you, but I don’t know if that business makes sense.’ It’s not so much that I don’t think people will eat that. People are still going to want authentic and unique. If you have real skills and a business plan that makes sense, there’s still opportunity for that.”
Asadoorian says many of the landlords he represents are seeking one-of-a-kind restaurants. “The success of these neighborhoods will be built on quality of life,” he says. “Not the generic same old same old. People will take less risks, but that doesn’t mean they won’t take calculated risks.”
Another budding restaurateur has been offered deals that make it hard to walk away. We’ll call them Jordan. The deals from landlords grew more attractive as the pandemic raged on. “They’re motivated to put people in spaces,” they say. “There’s a lot of supply out there and demand might be lower than what they were expecting. We’re getting looks at spaces and a little attention from landlords that we wouldn’t otherwise get.”
Jordan attributes this to having a proven track record. “People who are paying rent during the pandemic who haven’t abandoned ship, landlords are willing to listen to you during this time,” they say. “I’ve always seen this as the scene from Forrest Gump, when a hurricane came and took out all the shrimp boats except for one. You have to survive it first and then capitalize on it.”
Asadoorian has concerns about dangling-carrot deals. He divides restaurant owners into two buckets.“Are you a bottom feeder looking to open a restaurant with no money because there’s all these closed places or are you looking to be part of a new wave of the way people eat out,” he asks. He believes the first category thinks of themselves as victims dealt an unfair blow by the pandemic. “They’re looking for a great deal because it’s owed to them,” he says. The second group is more nimble and found way to operate their existing businesses during the pandemic.
The so-called “victims” may be more susceptible to signing leases that are doomed, such as a space that never should have been a restaurant in the first place. Asadoorian provides the example of a landlord desperate to fill a vacated space on the ground floor of a residential building because tenants are looking for such an amenity. “In those instances, landlords will do anything to save their skin,” he says. “A good deal in a lousy location is a recipe for disaster.”
Because location plays such a big role, it’s hard for Asadoorian to make sweeping statements like whether the District is currently a buyer’s or seller’s market. “I could tell you a handful of locations right now where literally they’ll give you the keys to the restaurant, buy you a car, and send your kids to college if you lease from them,” he says. “At the same time, I can tell you about spaces where rents haven’t come down at all and were leased overnight.”
Too-attractive deals are different from a little help crossing the finish line. “There are incentives or enticements to get people over the edge because things aren’t coming back tomorrow,” Asadoorian explains. “If a landlord has a space that’s vacant now and a viable tenant is knocking on the door in a funky location, not main street, landlords may say, ‘I just want stability. You’re a great tenant. I’ll give you a break for the first two years to get you off on the right foot.”
Not everyone is getting breaks. “We’ve been looking,” says a restaurateur we’ll call Avery. “Second generation spaces in good condition and in a decent location are hard to come by.” (The term refers to a building that was previously a restaurant, meaning it doesn’t need to be built from scratch.) “Mostly non-restaurant people are saying things along the lines of, ‘Well, I’m sure landlords must be giving you great deals now!’ The answer is, ‘Not so much.’”
Landlords, Avery says, tend to tend to think long term. “They’re aren’t willing to ink a 10-year deal at a reduced rent. It seems they’d rather hold the space vacant for now and then sign at a better rent in the next year or whenever leasing rates rise. Landlords are going to have to adjust if they want tenants.”
A chef we’ll call Austin is also looking to expand into second generation spaces. They say they’re encountering “big, heavy money investors from New York, Los Angeles, and Chicago” who’ve come to the city to buy up properties from “mom-and-pop” landlords who “couldn’t weather the storm.”
“It feels like post-Katrina New Orleans,” he says. “Developers who realized D.C. was hot before COVID said, ‘Let’s buy up a bunch of buildings.’ But because they have a lot of money, they’re offering unrealistic, astronomical rents. There’s this weird COVID amnesia where they feel like COVID didn’t exist.”
Austin describes a space he looked at in Chinatown that used to be a single restaurant. He says the New York developer who snatched it up split it into three areas. “The one we were looking at had 1,200 square feet of usable space,” he says. “The landlord was asking for $120 per square foot base rent, plus 6 percent percentage rent without a cap. If you walk down the street and there are 40 other spaces available in the same neighborhood, how do you justify asking these rents, especially after COVID?”
Asadoorian understands why a small, local operator might balk at that offer. But, he says, bigger players with multiple restaurants in several cities may not bat an eye. While the broker puts average commercial rent in downtown D.C. at $45 to $60 per square foot, he says the most popular areas, including Chinatown, can land as high as $100 to $120 per square foot, plus percentage rent.
Austin says paying percentage rent on top of what they perceive to be a high base rent feels more fair inside of a food hall. The property owner, he says, can make a better argument for sharing in the upside of a business by scraping a percentage of sales off the top because the market they curate attracts customers.
He’s frustrated landlords won’t budge. “Some won’t even respond to anything under what they’re asking,” Austin says. “There can’t even be a negotiation. The people who couldn’t afford buildings sold them and others are sitting on them.”
Austin fears D.C. could lose its hard-won character if the landscape becomes dominated by out-of-town restaurants who can afford high rents. The chef points to The Smith as an example. The New York-import has prime locations downtown and on U Street NW. “D.C. was working so hard at building a soul.”
The 14th Street NW corridor experienced such transformation. Le Diplomate, Barcelona Wine Bar, Shake Shack, and JINYA Ramen Bar were early out-of-town imports. Lately there’s been a fresh crop of outsiders including Jeni’s Splendid Ice Creams, Gypsy Kitchen, and Mexicue. Still more are coming soon like Vin Sur Vingt and Lolita Cocina Mexican Restaurant.
Asadoorian agrees there’s been heightened interest in D.C. from outside players. “We have a crisis economy,” he explains. “The worse things get in the country, the government is going to grow. Our economy is better suited for this. We might see operators from New York, Philly, or Chicago expand here. They’re not going to overpay, but they may see opportunities they didn’t have in the past.”
But he calls the notion that out-of-towners are going to sit on properties until they get top dollar because they can afford to unfounded. “I haven’t heard that myself and I’m active in so many places,” Asadoorian says. “There may be one or two situations like that, but the people that are doing that are going to be in for a rude awakening at the end of the day because there’s no easy way out of this. You can’t buy up properties because the market is soft and then think you’ll wait it out for a year and jack up the prices.”
Overall, Asadoorian has an optimistic outlook on the future. He thinks talented local restaurateurs who are “young in age or young in thinking” can capitalize on the “golden age of opportunity around the corner.” He encourages them to target thriving “pocket neighborhoods” instead of scooping up vacant properties without much thought or intention.
“It’s like we have a bungee cord around our waist,” Asadoorian continues. “We’re moving forward and can see how to change D.C. and continue to grow with these great restaurants, but we just can’t get there yet. At some point someone will cut that bungee cord and we’ll shoot forward.”
The opportunities are so plentiful that Asadoorian says he’s never worked more hours as a commercial real estate matchmaker. In addition to what’s already available, more properties are coming online at Buzzard Point and near Nationals Park. “We’re literally planting seeds,” he says. “I think 2022 is when you’ll begin to see the fruits of that and it’ll really take off in 2023. The Roaring 20s after the 1918 flu will be more like 2023 and 2024 where the bungee cord gets snipped and you see some really great things.”
But the light at the end of the tunnel doesn’t shine as bright for some Washingtonians, according to Capital Area Asset Builders CEO and Executive Director Joseph Leitmann-Santa Cruz. “There are some individuals and corporations that have taken a significant hit right now but are well positioned to recover during an economic expansion as we come out of the current crisis,” he says. “But there are other entrepreneurs who, because of their race or ethnicity, have been kept out of access to capital even before the pandemic.”
Systemic racism has long made access to capital less obtainable for BIPOC entrepreneurs. According Leitmann-Santa Cruz, one in five adults in D.C. were credit invisible before the pandemic. “Anytime their credit score is run, no information shows up,” he explains. “The majority of them are Black and Brown.” This statistic doesn’t even take undocumented residents who make up 5 percent of the population into account.
The pandemic, Leitmann-Santa Cruz argues, has only exacerbated the situation. “If you don’t have clients coming in to consume your food, you can’t show positive cash flow to financial institutions,” he says. Even the city’s most popular restaurants have reported doing as little as 20 to 40 percent of pre-pandemic sales. “Usually they look at the business’s cash flow, what collateral the owner can provide, and their credit score. With small restaurants, the owner or owners have likely taken out personal loans to provide liquidity.”
While the D.C. Council passed emergency legislation to protect Washingtonians from having pandemic-related hardships ruin their credit score, Leitmann-Santa Cruz says it only provides temporary relief. “Anything they put on credit cards that they’ve not been able to pay back is not being shown as delinquent because of consumer protections, but when that expires creditors will come back,” he says. “The credit-reporting bureaus will have access to that historical data.”
The uphill battle some BIPOC chefs and restaurateurs face could sideline them in the post-pandemic economy some are so hopeful about unless the Bowser administration, the D.C. Council, nonprofits, Community Development Financial Institutions, and the private sector come together to create more equitable access to opportunities.
“The District, by not being represented as the diverse city that it is, would lose the ability to bring people together to provide a cultural experience,” Leitmann-Santa Cruz says. “And overall, we would lose the diversity that is truly a richness in the District.”