Restaurateurs with Cash Are Ready to Seize the Post-COVID Moment

Cash-strapped landlords are offering more concessions than ever, while vaccines offer the promise of a normal life.


(Bloomberg)—In 2020, a record number of U.S. restaurants closed their doors for good. In 2021, the industry’s survivors see an unprecedented opportunity.

Cash-strapped landlords are offering more concessions than ever to fill space, while the vaccine-led promise of a return to normal life — and a new round of government stimulus — is expected to unleash a wave of pent-up demand for dining out. That sets the stage for a spate of restaurant openings heading into next year.

It’s a very uneven landscape. If the bulk of the estimated 91,000 restaurants and bars that closed in 2020 were small, family-owned establishments, many of those that are now rushing to set up are chains or Covid-era conveniences like ghost kitchens. Not only does this signal a rapid acceleration of a decades-long trend of local eateries giving way to corporate-backed enterprises, but it highlights, once again, how the pandemic has exacerbated the inequality that marks nearly every facet of the U.S. economy: Strong, deep-pocketed businesses are thriving while the weaker are struggling to survive.

“It’s an economy of the haves and the have-nots,” said Camille Renshaw, chief executive officer of B+E Brokerage, a commercial real estate brokerage specializing in single-tenant properties that often house food chains. “Those with credit lines are tapping into those lines and using that pretty opportunistically right now.”

Chipotle Mexican Grill Inc. is planning on opening 200 locations this year. C3, which operates fast-casual chains and ghost kitchens that prepare food for delivery only, expects to sign 300 new leases. Upscale-restaurant operators, such as Jason Berry, founder of Knead Hospitality + Design, see a clear opportunity as well.

“When the dust settles, there will be no better time from a financial point of view to take the entrepreneurial plunge,” said Berry, whose company operates restaurants in the Washington, D.C, area. He expects a strong rebound in 2022 and 2023.

Of course, the opportunity stems largely from widespread closures following capacity restrictions, plummeting sales and new operating costs. After unprecedented shutdowns last year, another 26,000 restaurants are expected to close in 2021 due to ongoing fallout from the pandemic, according to an estimate from Technomic, a Chicago-based research company that specializes in the food-service industry. Growth is expected to pick up next year and continue through 2025.

Slow Recovery

Small chains and independent restaurants, which represent more than two-thirds of the restaurant industry, according to Technomic, have borne the brunt of the impact, with roughly 90% of last year’s closures coming from their ranks.

That’s left landlords with empty space that’s tough to fill. The retail vacancy rate at U.S. neighborhood and community shopping centers, where restaurants often are located, rose to 10.5% at the end of last year, the highest since 2013, according to Moody’s Analytics.

Jeffrey Bank, chief executive officer of Alicart Restaurant Group, said there’s a “gold rush of opportunity for us right now.” He operates Carmine’s Italian restaurants in New York, Las Vegas, Washington, and the Bahamas, and said real estate agents are constantly calling to offer deals.

More space may become available this year as landlords start getting tougher on restaurant owners who were behind on payments, said Cobi Levy, co-owner of New York’s Lola Taverna. He expects to open three new spots in the city in the next five months. Hiring also is easier because of the closures, he said.

“Months out and I’m already all staffed up at my new places,” he said. “That never could have happened before.”

Large operators such as Chipotle, which saw its shares more than double in the past 12 months because of its pandemic popularity, are set to get even bigger. The burrito chain is focused on increasing drive-thru locations in its 200 openings this year.

“A lot of people are reaching out to us,” CEO Brian Niccol said in a recent interview. “Landlords would love to have Chipotle; I’m learning more and more.”

The ongoing popularity of fast-food and drive-thru options show that some pandemic trends are likely to stay even after dining rooms reopen. Rob Hunziker, a restaurant broker in Marietta, Georgia, with 25 years of experience, said drive-thru locations are commanding a premium like never before. “Some of these chains are just killing it right now, and they’re going for the highest prices I’ve ever seen,” he said.

One of the many restaurants that permanently shut its doors due to the pandemic. Rent and lease signs have become frequent sights in such big cities as New York. Photographer: Nina Westervelt/Bloomberg

On the other hand, many smaller businesses are selling at a big discount. Hunziker said he had clients that sold a small Mexican dining chain in Austin, Texas, that saw its sales plummet during the pandemic, and the owners couldn’t handle their debt. The sellers got about half of what they could have gotten a year ago, he said.

Sam Nazarian, founder of C3, characterizes the current environment as “a once-in-a-generation time to secure real estate.” His company, backed by mall owner Simon Property Group Inc. and hotel operator Accor SA, signed almost 200 leases last year. Prior to that, it had fewer than 30 locations.

Beyond ghost kitchens, the company also is reaching deals to open chains like Umami Burger and its Japanese concept Krispy Rice in vacant restaurant spaces, Nazarian said.

Full-service restaurants may regain market share from quick-service chains in the back half of the year as vaccinations become more widespread, dining-room restrictions ease and pent-up demand grows, according to Michael Halen, a restaurants analyst with Bloomberg Intelligence. Still, average sales per restaurant will be well below 2019 levels.

For much of the industry, it’s a matter of staying afloat until that recovery can take hold.

Chad Severson, a realtor who also operates a bar in the Chicago suburb of Schaumburg, said he expects a post-pandemic influx as consumers work off their cabin fever. But with no income during a recent governor-mandated shutdown, he paid the business’s electric bill on his personal credit cards. He had to toss old beer that went unconsumed.

“You have to think you can survive, but it’s not easy,” he said. “It’s just such a vicious, vicious cycle that’s been created.”