New York City’s retailers and restaurants are suffering their steepest downturn in decades. While these businesses and property owners still believe in the city’s future, the combination of lower foot traffic, complicated rules, and high taxes create a tough road ahead for the city’s storefronts.

Vacant spaces can mean proliferating blight and lower tax revenue, but with interest rates at a cyclical low, they can also serve as a catalyst for reinvestment and economic expansion. How can policymakers restart investment to lead New York’s recovery?

On September 14, join the Manhattan Institute for a virtual discussion on the state of our storefronts, how key players are adapting to changes, and what innovative solutions are arising out of this challenging time.

 

Event Transcript

Michael Hendrix:

Welcome to the Manhattan Institute's event on Malls and Main Street: The Challenge Of Retail Vacancies. I'm Michael Hendrix, director of state local policy here at MI, and we're delighted to be joined today by a stellar panel to talk retail, restaurants, and real estate here in New York City. Main street businesses have been uniquely impacted by the pandemic of COVID-19. Many storefronts are shuttered or shuttering, and their futures are uncertain. This in turn impacts property owners and indeed the future of New York City and the [inaudible 00:00:46] city millions live in.

Michael Hendrix:

While I firmly believe there's unique and enormous long-term value that likely remains to running a main street business or owning property in New York City, that shouldn't blind us to today's challenges or the tough road ahead. Now before we jump into our discussion, two quick programming notes. Throughout our event, please enter your questions and any of the platforms you're watching us on, and I'll wrap them into our discussion. Also, please consider subscribing to the Manhattan Institute's newsletters or making a contribution to our mission. We've posted links for doing so right in the comment's window in your screen and now onto discussion.

Michael Hendrix:

We're delighted to be joined by Paimaan Lodhi, the senior vice president of policy and planning at REBNY, Andrew Rigie, executive director of the New York City Hospitality Alliance, and Steven Soutendijk, the executive director of Cushman and Wakefield. Thank you so much for joining us.

Andrew Rigie:

Thank you.

Paimaan Lodhi:

Thank you for having us.

Steven Soutendijk:

Glad to be here.

Michael Hendrix:

Andrew, I want to start with you with some of the big news. Governor Andrew Cuomo green-lit indoor dining, Mayor de Blasio who's working with him on this. What does this mean for your members? What does it mean for the city and the future of our storefronts?

Andrew Rigie:

Well, first thanks for having me. Well, listen, it means a lot. Restaurants in New York City had anticipated opening indoors back on July 6. That was put on hold and now it was announced that we will begin operating indoors at a 25% occupancy rate starting on September 30th, subject to all different types of safety protocols and different types of requirements. It's incredibly important. Listen, a lot of restaurants would have liked to be able to open up at a 50% occupancy, like the restaurants around the rest of the state, but one step forward is better than standing still or moving backwards.

Andrew Rigie:

We need to get open, but at the end of the day, I think we need to be clear that pre-pandemic at a 100% occupancy, it was just so difficult to survive long-term as a restaurant, a small business here in the city of New York. It's extremely positive, but we also need to understand it in context that we still need the federal government to pass the Restaurants Act. We still need support from the state and city government in so many different areas, some of which we'll probably touch on. It's good news to get moving, especially as the temperature will start to get cooler.

Andrew Rigie:

What's also really important in the governor's announcement is that there is a roadmap to get to 50% occupancy hopefully by November 1st, or potentially even sooner he said if the infection rates stay low, compliance is okay, and we're meeting a couple different metrics. That's been a challenge for these business owners. They don't know what lies ahead for them. Having some plan or something they can look at and say, "Okay, if X, Y, Z happens, then I can plan to reopen." Meaning, buying more product hiring the right number of employees back. It's all part of a really complex puzzle. It's a great start, better than standing still or moving backwards, but there's so much more that needs to be done, and this is the beginning of a very long road to recovery.

Michael Hendrix:

Andrew, I want to stick with you for just a second. Outdoor dining for anyone who's in New York City or has been visiting New York City recently, you know that the streets are alive with outdoor dining, but the question that I've had and maybe others have had is, how much of a difference is that making? How important is this how vital? Is it this continues into the long term?

Andrew Rigie:

It's incredibly important, but again, you have to put everything in context. I should say pre-pandemic, there was more than 25,000 eating and drinking establishments in the five boroughs, and you have about 10,000 restaurants that are participating in outdoor dining and more than 6000 have the sidewalk, as well as part of the street space. You really need to look at it restaurant by restaurant that's participating. For those that are on a side, if you have the street and the avenue, you get a lot of space. It's been much more helpful, but you need to look how many seats do they have normally indoors.

Andrew Rigie:

It's a different recipe of success for different restaurants, but again, it was never intended to be the sole revenue stream to support restaurants. When we pitched it initially, we knew we were going to have reduced occupancy indoor dining. We thought maybe if we're 50% indoors and we can get 25% more outdoors, we're up to 75%, and that's enough just to get by for a short period of time, but here we are six months in, we haven't even started indoor dining. It's great, it's important. Does it save the industry? No. It hasn't helped obviously all the restaurants that are not participating in it, and as we get into the cooler weather, there's been active conversations about what it's going to look.

Andrew Rigie:

I hope we're going to extend it past the deadline of October 31st. I hope we're going to approve the usage of different types of heat lamps, so people are comfortable sitting outside. As the mayor said, it's going to come back next year and I think earlier today he said, he really thinks it's something that should be permanent. I would love to see an outdoor dining program that's permanent, that is inclusive of even more restaurants throughout the five boroughs, but all in all, it's a great thing as if you mentioned, it's also helped bring a vibrancy and a life back to the city, which is going to be so important in getting our city moving again for many of the reasons I'm sure myself...

Michael Hendrix:

Now, I want to get back to you after we have a little bit more discussion and what you're hearing from your members, but Steven, let's step back here. Why don't you give us a sense of the state of the retail space and marketplace in New York City? What are you seeing?

Steven Soutendijk:

Well, the first thing I'm seeing is a lot of space. It's a market that was challenged and was definitely a tenant friendly market pre-COVID. The amount of retail bankruptcies, the amount of restaurant tours, handing back the keys to their landlords, just creating a tremendous amount of available inventory, and that's going to put downward pressure on pricing. Right now, with so much uncertainty and New York still very slowly reopening, and outside of New York when you're not in New York, there's a perception that the pandemic is still ravaging the city and it's dead, and there's crime and there's garbage, and there are homeless people.

Steven Soutendijk:

That perception is challenging for the retail market, and Andrew's point about outdoor seating, it's not about keeping restaurants afloat, although I think to some extent, that has helped. It's about the perception and changing the perception of New York. It creates a vibrancy on the street that is absolutely unmistakable, and walking around the city and eating outside and dining outside, I just don't think the city's ever going to be able to take it away. It's such a nice addition to the streetscape, and I think that overall, it enhances the vibrancy of our streetscape, and it will in the long term improve the viability of the overall retail market, not just restaurants.

Michael Hendrix:

Now I may have supposed to be an impartial moderator here, but I have to say I love the outdoor dining. I've argued in favor-

Steven Soutendijk:

No question.

Michael Hendrix:

... of it. I think it's fantastic, but Steven, how much are sinking and why? What are they telling us?

Steven Soutendijk:

Supply and demand, basic economics. I think that rents are likely to go down on average between 20% and 30%. In some quarters, more, in some quarters, less. I think that tourist driven markets like Times Square, like Fifth Avenue will be more impacted by COVID, by the lack of tourism. We had 68 million tourists come to New York in 2019. That number is going to be substantially less in 2020 and likely slow to recover. Those markets that were driven by tourist traffic are going to see a bigger hit than markets that have denser residential. As people slowly return to work and work from home one or two days a week, I think markets the upper east and upper west sides that are truly driven by residential, live in traffic.

Steven Soutendijk:

I think that those are actually going to see less of a hit because more of those people are not commuting. They're staying at home, they're working from home so they're getting lunch on the upper east side. They're using their amenities more. They're going to get their hair done, their nails done. As opposed to doing it in midtown, they're doing it on the upper east and upper west side.

Michael Hendrix:

Does this suggest that the picture also varies by borough?

Steven Soutendijk:

It does, yes, absolutely. I think that in all likelihood, the boroughs are likely to be less impacted in terms of pricing than Manhattan because Fifth Avenue, Madison Avenue, SOhO, Times Square, I think we're going to see the bulk of the rental reductions in those markets, but it's going to be across the board Michael.

Michael Hendrix:

Absolutely. Paimaan, I want to turn to you. Does what Steve say ring true to you? What are you hearing from your members?

Paimaan Lodhi:

Yeah. I mean look undoubtedly, retail is the asset class in real estate that's most impacted by the pandemic. I mean it was already in a tenuous position before, which makes this long-term recovery even more challenging. As Andrew was saying, we took an important step by providing a roadmap to get to indoor dining. We still have a long way to go. We have to get to 50% to come back up, a level in which businesses can sustain their operation. Look, federal government needs to resolve this next stimulus [inaudible 00:10:47]. Without federal funding, city is in a really tough spot. I mean it's critical to get back on solid funding. It's going to take money to fund the operation of the city, potential services.

Paimaan Lodhi:

I mean that's why we've made it one of our top state and local aid, our highest federal priority. We don't have a timeline yet gotten out of the business of making predictions about [inaudible 00:11:14], but the longer things go by without a package, the more harm that we're going to see. The PPP and the expanded unemployment program have helped individuals and some businesses, but as Andrew was saying, more direct subsidy is needed for small business. There is a proposed Workplace Recovery Act which would resolve some of the inadequacies of the FAIR Act by providing direct [inaudible 00:11:44], payroll, operating expenses rent. The benefit is that it would recover those expenses from March through the end of this year.

Paimaan Lodhi:

I think the other issue that we face is simply that there aren't office workers that are back, and that population really does support a high percentage of small businesses, especially in the central business industry. Just to give you a sense of where it can stand, I mean office occupancy last month and a half really in Manhattan, it's hovering somewhere around 7%. I would just add that public confidence is another key element that seemed to be involved here, aside from obviously the public element.

Michael Hendrix:

What if federal aid never comes through?

Paimaan Lodhi:

I don't want to imagine that scenario.

Michael Hendrix:

It's that bad?

Paimaan Lodhi:

It would be really, really bad. Yeah.

Michael Hendrix:

Well, now others can certainly jump in, but also let's tease out the retail versus restaurants. Is there any difference in terms of how they're navigating this pandemic, and how they are suffering or not suffering through this crisis?

Steven Soutendijk:

Yeah. I mean I'll take that. It might be directed at me. I think retailers are struggling just as much as restaurants. It's been a very difficult time in the apparel business, for example. Athleisure retailers have been doing well, but Brooks Brothers went bankrupt. Anybody selling business casual or business attire has had a very difficult COVID. Most amenity tenants, and Paimaan alluded to midtown being spares and financial district or central business districts suffering from 7% office occupancy. I just got word this morning that my favorite shoeshine and shoe repair guy down in the subway at 53rd Lex is unfortunately going to be going out of business and handing back the keys to his landlord.

Steven Soutendijk:

That's traditional amenity retail that could make money pre-pandemic, but just office occupancy being off as much as it is and it plans to be. I mean midtown is going to be really slow to return back to the office it seems like. We've always had Labor Day all summer as this inflection point, this bogey. Well, let's just get to Labor Day and then everyone will be back in the office. Well, I was in the office last week. Everybody was not back in the office unfortunately, and more and more CEOs are being urged by local elected officials and real estate interests and everybody who has a stake in New York City to get their people back safely, but to get them back eventually.

Michael Hendrix:

Now how much are these closures in midtown a function of say national retailers going bankrupt? Neiman Marcus being a great example. There are others, and how much is this a story of something much more unique to New York City?

Steven Soutendijk:

I don't actually think it is unique to New York City. The perception of New York in national media seems to be that New York suffers more than other cities, but San Francisco, Los Angeles, Boston, all of these cities are suffering from the same issues that New York has. It's not like everybody in Boston is back in the office. National retailers do not make up the bulk of retail square footage in New York City. It's local, mom-and-pop, small businesses. Brooks Brothers going bankrupt will leave three stores, four stores in New York vacant. It's not that meaningful. Neiman Marcus is a large chunk of square footage, but it was a store that had been open and operating for less than two years, and it was just one store.

Steven Soutendijk:

I'm much more concerned about smaller, local, and regional retailers than I am about national retailers.

Michael Hendrix:

Right. No, that's a great point. Andrew, I want to come back to you for a moment. Now the Hospitality Alliance regularly surveys its members. You regularly survey your members. What are you hearing this month? I have to say the past couple months have been pretty harrowing. What are you hearing now?

Andrew Rigie:

We're waiting just on our August data, but in July, it was something like 83% of the respondents didn't pay any or only paid partial rent in the month of July, and that's pretty much been consistent since early on. There was a little bit of a bump because folks got the PPP money and they're able to use part of that to go to rent and utilities, but it's just an overall challenging conversation. We understand, I spoke with the folks on this meeting about it, is that look, a lot of landlords, they have mortgages, there's property taxes, there's all these expenses.

Andrew Rigie:

The fact that they can't pay their rent and these are small business owners that don't have access to large capital that are not realistically going to be able to pay back multiple months of rent, or they're going to be able to pay pre-pandemic rents at any point in the unforeseen future raises a huge flag. While some people say cancel rent or do this or do that, I think we really need to have a very honest conversation with all the players about what are we going to do about this issue because landlords need tenants at some point, and these small business owners need commercial spaces. There's going to have to be some adjustment and some support. Otherwise, I fear we could really see defaults throughout the system.

Andrew Rigie:

I'd also note, people always ask, "Well, how many restaurants have closed so far?" I think there was one Yelp survey or one Yelp report and it said about 13 restaurants had already closed, and maybe this was back in July so certainly more have since, but I don't even like that question. I think the question is, how many restaurants are artificially being kept open right now? The state has a moratorium on evictions, the city has a law that suspended enforcement of personal liability guarantees and leases, not all, but many restaurants did receive money for PPP. When you add all these things up, you basically find out there's no way these restaurants would have been able to stay open if these policies weren't intact.

Andrew Rigie:

How are we going to be able to continue and keep them open for the unforeseen future? I mean hopefully, our numbers continue to go down, our infection rate numbers continue to go down, and we can get back to some, I don't know, eco movement in the economy. I think what everyone said earlier, depending on neighborhood, it's going to impact restaurants, but when you look in these commercial districts where you rely on office workers and tourists, it's going to be a long road to recovery. We really need everyone to rally.

Andrew Rigie:

Our government leaders, our advocacy groups, the business owners, our elected officials to basically get people back to work in a safe way and support these businesses, until enough people are comfortable getting back to business in a normal way that they can sustain the local restaurants, the barbershops, shoeshine places because my biggest fear is by the time these companies say, "Okay, we're recalling everyone back into the office," they're going to come back and it's going to be no man's land, and there's not going to be a barber shop. They're not going to be their dry cleaner, there's not going to be their restaurants, and people are going to say, "Well, why am I going back to the office now if there's none of these amenities?"

Andrew Rigie:

It's a big, big issue and you've seen some reporting recently about a letter that was sent to the mayor and all of this. I won't get too deep into all those politics, but we need a cheerleader, and we really need everyone to be cheerleaders. We need everyone to take actions to go out of their way to support businesses in these areas, so they stand a chance of survival.

Michael Hendrix:

New York City isn't dead, but it certainly seems like it is where many of our businesses are in life support, and I think Andrew, you made this point that even before this pandemic crisis and restaurants operating at 100% capacity, that many were still struggling and retailers too were struggling. There was a long conversation years leading up to this crisis about a retail vacancy crisis, and it seems like there was a retail vacancy crisis during a time of plenty, during this time of hardship, that could even be a greater problem. I guess the question is, why isn't it even worse? Why aren't we seeing even more vacancies, even more bankruptcies? It sounds like Andrew, you partly answered that. I wonder if anybody has other thoughts if they want to jump in.

Paimaan Lodhi:

Yeah. I mean Michael, I do have to chime in here because the myth about the retail apocalypse or the vacancy crisis that the city face is just that. It was a myth. I mean when they did the surveying, they found it somewhere between 7% to 10%, depending on where you looked at. I mean if you were to compare those numbers nationally to where we're at, New York was very healthy given the fact that retail and brick-and-mortar retail in general was facing this lightly. Look, in the short term, it's clear that there's going to be a whole lot of pain, but this does present an opportunity for the city and government to reimagine how it engages the business community, how it can help businesses with startup costs. Andrew, Steve, and I have spoken about this before that.

Paimaan Lodhi:

I mean the startup costs of spreading an establishment are not only exorbitantly awesome, but also unnecessarily time consuming. Retailers and restaurant tours have complained that the red tape makes New York City very unattractive. I mean like serious consideration should be given to basically completely reconstructing the department of small business services that it solely functions that process service, where businesses can get through all the necessary requirements. Andrew and Steven tell just how many there are versus off the top of my head. DOD, cultural affairs, FDNY, Department of Health, on ed, but you've got to be able to do this in the next probably time fashion.

Paimaan Lodhi:

I mean it's time for them to make it easier for these businesses. I mean just the cost of going through the regulatory process could be a part-time job for small businesses.

Michael Hendrix:

Now I want us to have a discussion, especially the end about policies in the future. I think this is a great segue. We'll have to come back to that as well. I think it's a great point. We have some questions from the audience. Please keep them coming in, but one question from Kevin is he's touching on this drop in tourism that I've heard a few of you talked about. This seems especially devastating for parts of manhattan, but what about all this talk about residents leaving New York City? Certainly, it seems like many did during the pandemic, but now we're having a perhaps a related or separate conversation about others leaving permanently, lines from moving trucks, things like that.

Michael Hendrix:

Is this a concern? Are you hearing anything about this? What are your members saying? Do you put much shock into it?

Steven Soutendijk:

I'll answer that. I think it is a real phenomenon. I think it is an accelerant, rather than shifting New Yorkers behaviors and making them all of a sudden decide that they want to move to New Jersey. I think that everybody that's moving had a conversation about moving before COVID, and this just accelerated it. I'm not concerned that their apartments won't be filled by the next generation of New Yorkers, and I think that that's an important component of this. We're probably going to get younger as the city becomes more affordable, as rents go down, not just commercial rents, residential rents. It will be hopefully easier to start a business. It will be easier to find a job.

Steven Soutendijk:

It will be easier to find an affordable apartment, and the 30-something couple that had 50 pieces in the New York Times that has two kids, that have been debating whether or not they should move to Maplewood for the last five years, and they finally did it. That's not really that interesting a story, they were going to move anyway. It's really more about who takes their place, and I'm confident that New York will be even more vibrant as a result of it becoming more affordable.

Michael Hendrix:

Right. This always seems lie a question of timing. Steve, you think I would assume over of a longer time horizon, if you're operating a business day-to-day and you're trying to meet payroll, maybe there's a different time horizon at play. In that tension between a longer time horizon and a shorter time horizon, maybe there's some clarity that we can get on just how concerning is this. How long will we be in a time of crisis before we get to that long-term potential that doesn't seem to have gone away? In fact, with lower rents, it just seems like it's potential for even more people to move to New York City, but in the short term, how do we make the short term as short as possible, that seems to be the question, is that right?

Steven Soutendijk:

Well, I think that that has a lot to do with the virus obviously. That's a vaccine question as much as it is anything else, but you're absolutely right and look, the time frame is uncertain. One of the things Andrew alluded to is how we've artificially propped up a lot of these establishments, especially restaurants, whether it's with PPP or the good guy guarantee waiver or evictions not being able to proceed in earnest. How long will these guys hold on if they're not making money, and at what point did they say, the restaurant business was hard enough before COVID and I just can't wake up and do this every day, and I'd rather go get another job and here are the keys Mr. Landlord?

Steven Soutendijk:

Preventing that is really important, but I wanted to get to one other point, which is that generally, not always, but generally, landlords are rationally economic or economically rational, excuse me. They will lower rents so that they can fill space, and I'm confident that the market will work, and lower rents will lead to transactional velocity and deals getting signed and businesses reopening. Most landlords won't say, "Hey, pay me the full rent, or I'm going to take back the keys and evict you," because they know that there isn't a long line of restaurateurs that are willing to take that space if they get the keys back. They know that there are no good options, so most of them.

Steven Soutendijk:

I know Andrew said in his survey that 83% of the respondents didn't pay rent or didn't pay full rent. Not 83% of the restaurants in New York have closed. I think that that's indicative of most landlords being willing to work with their tenants to keep them afloat for at least the last six months. We'll see what the next six months bring, but obviously, that Labor Day timeframe is probably not realistic and landlords and tenants are going to have hard conversations for the next couple of months.

Michael Hendrix:

Speaking of conversations, Andrew, I don't know if you want to jump in to respond to what Steve said. Are you seeing this kind of negotiations going on on issues like rent?

Andrew Rigie:

Unfortunately not. I've heard some good conversations, but they're not across the board. Some of them have been really challenging. You really have what you'd expect of just humans trying to negotiate anything. You have some situations where you have landlords that are going out of their way to work with their commercial tenants. You have other situations where I think the landlords are waiting to see what plays out. Perhaps we're six months into this, but you're talking about renegotiating leases for 10-, 15-year periods. They may be a little bit hesitant to do too much without knowing what's happening, is there going to be more federal support?

Andrew Rigie:

Then I think you have this other group, just like anyone that they just don't want to negotiate and they don't care, and those are the really challenging situations. Those are the ones that tend to grab the headlines, but it's an overall very challenging conversation because the uncertainty for everyone. I think maybe a lot of people were waiting to see what happens with a final, or I should say another federal stimulus, but it looks more and more unlikely that something would happen before the election. I mean perhaps now everyone waits to see what the result of that election is, which could really determine what's going to happen next. I will say the thing that, and I haven't really figured out how to respond to it, but my concern also is just the dialogue.

Andrew Rigie:

You have one side saying New York city's dead, the other side saying everything's fine. One group saying no, we need to welcome and I live on the upper west side, so I'm talking about the shelters. We need to welcome people into our communities that are really in a bad place, or down on their luck or whatnot, others saying that it's a bunch of drug addicts and violent criminals. I think we really need to come together and acknowledge. Listen, we have a lot of serious challenges, but the city is not dead. The outdoor dining is really, really important because it's brought vibrancy back.

Andrew Rigie:

Is it safe and great to eat outside? Absolutely, but are there incidents and are there some bad incidents? Absolutely, and I think if we can all no matter what you're feeling about the situation is come together and be like, "You know what, there's good and bad and we need to work together to figure this out," because it is those ground floor retailers, the restaurants, the other small businesses that help keep the fabric of our communities together and will bring the additional economic and social activity back. People need to see that. I mean I remember in March and April and May riding my bike around this and especially at night, but during the day, it was just quiet.

Andrew Rigie:

The elements on the street weren't good, and you could go in at night. I mean it was pitch dark, block after block after block because there were no restaurants and bars open. I think the outdoor dining in these areas have brought that life back to the street, but New York City has made up a lot of different neighborhoods, where people have a lot of different experiences. I think if we can understand other people's experiences and they come together and talk about what we're going to do, we're going to be better off. We're always going to come back as a city, but the longer that it takes for these different factions to come together and say, we really have to do something about this, we're going to exacerbate the issue.

Michael Hendrix:

For bringing people together, that also points to political leadership too. There's a question from Tom in our audience referencing political leadership from Governor Cuomo, but really asking about Mayor Bill de Blasio. What role has he played in the restoration of these main street businesses, and what role could he play? Paimaan, I'll pick on you, but others can jump in.

Paimaan Lodhi:

Look, I mean if we're all going to be fair here there is no playbook to follow, right? This is something that is unique. Andrew talked about it before. The city has to be managed effectively and efficiently. We got to get our priorities straight. We need a cheerleader. We need to instill public confidence, and a lot of that is by confidently and clearly articulating where things stand. I think we all do better when we know more information and things are transparent. Just aside from the public healthy piece, but it is certainly related in terms of how you get the office workers back in. We've got to address the school situation. Our workforce can't really function without child care, and I'm not saying that that's an easy situation to resolve, but it's something that government directly controls.

Michael Hendrix:

There's actually another question related to that I think on providing a sense of assurance in trust. There's partly the role that political players have, but also property owners, there's a question here from David in our audience on HVAC systems, other things that could be instituted by property owners to bring about trust, not only from people maybe dining indoors or shopping indoors, but also just the businesses knowing that the kind of spaces that they're operating in will be ones not only welcoming but safe and trustworthy by people who are their customers. I wonder what maybe Steve, you're seeing from property owners improving or giving spaces for people to feel safe.

Steven Soutendijk:

Sure. I mean certainly big office buildings in Manhattan have done this. Some more than others, but my building which is on 6th Avenue and 51st Street which is owned by Vornado, they have implemented temperature checks, one-way directional elevator positioning, no touch elevator buttons. There's a certain amount of virus theater that's associated with it, and then there are the real meaningful changes, like heavier duty HVAC filtration. Those things are being announced and they are being shared with all of the office tenants, so that they feel safe. Restaurants doing a very similar thing, whether it's just keeping their windows open or just having sanitizer everywhere or a bag to put your mask.

Steven Soutendijk:

These are all really important things if we're going to get people not only back into the office, but back dining. When we are allowed to dine indoors, what are restaurants going to do to make sure that their customer base feels safe? I know that Andrew has spent a lot of time working on this because this is super important. If we allow people to come back into restaurants, but they don't because they don't feel safe, what was the point of that? Andrew can certainly speak to that-

Michael Hendrix:

Yeah Andrew, please jump in.

Steven Soutendijk:

... because generally he's been working on it.

Andrew Rigie:

Yeah. I mean that's going to be a big part of the equation, is what is the comfort level of the customer base, and I have to presume and based on having conversations, a lot of it's going to have to do with different demographics of a restaurant's customers. If our parents going to be comfortable going eating indoors with their young children or going with their elderly parents out to a restaurant. Those are the groups that you cater to mostly, no pun intended or maybe pun. Are they going to come in and eat at your restaurant versus if you have a bit of a younger demographic which tends to have a bit of a higher risk tolerance so to speak? They'll be okay going and eating out.

Andrew Rigie:

I think we're going to see as it starts to cool down outside, how many of those consumers will feel comfortable moving indoors, but a lot of it's going to be, what are these restaurants doing to make people feel comfortable? If you walk into a restaurant and you see tables being sanitized, someone offers you hand sanitizer, you see windows and doors that are left open and all these other practices, it will convey a sense of safety and care to your consumers. I think that's going to be so important in the rollout of indoor dining, but then the big thing that plays into everything that we've spoken to and maybe Paimaan mentioned, we are in a pandemic.

Andrew Rigie:

This is different in the sense, and not totally different, but other crises, they can always come back, but you see a spike in infection cases and all of a sudden, you close down. It's very difficult because the approach, while you can have it as planned out as possible, is really subject to change right away, and that is going to impact consumer confidence and also what people hear, listen. If people are working remotely now and they come in and their first office and then restaurant experience is a positive one, they're going to tell other people. How is the press going to report on this? Are we going to be focusing on all the great stories, or is there going to be stories about one or two bad experiences?

Andrew Rigie:

So much of it is unknown, but the one thing that we know is that restaurants are going to have to do everything to give consumers confidence, and consumers are going to have to do everything possible to try to give these businesses a chance to get moving again. Because if they don't, as I said before, we're really going to exacerbate the economic and social crisis that we're in. It's uncertain and we need to be nimble enough to act on the fly, and I think we need to have the best, most positive outlook we can in an otherwise very gloomy situation because bad news and bad vibes out there, just snowball...

Steven Soutendijk:

Snowball.

Michael Hendrix:

Right, right, right, right. It's also just that there's some assurance even to this, I think Steve you called it virus theater. Even if there's some theatrical element to it, if that plays a role in making people trust to go out and dine or shop, and it's also being backed up by other concrete measures to actually keep people safe and be very cautious, that seems like it could potentially be a good thing. I wonder if others have any thoughts on that because I also have another question related to the safety element.

Paimaan Lodhi:

Well, just on messaging confidence and something concrete that we can all talk about, is I can't tell you how many people have told me that they've never seen the subways cleaner before, but there hasn't been stories about that. Maybe it's just all part of the vicious cycle of doom and gloom that we're in right now, but this is actually one of the truly remarkable pieces, like how quickly government and an agency was able to transform itself, and really that should be something that instills confidence in the public. We all know how critical the subway system is that New York City is moving forward...

Andrew Rigie:

Yeah, I would just add to that...

Paimaan Lodhi:

Other than that, we cannot take cars and ubers everywhere. It's just we're not built for that.

Michael Hendrix:

Andrew.

Andrew Rigie:

I was just going to add to that. I've been saying over and over the old Churchill quote, "Don't let a good crisis go to waste." Among all these horrible situations, look at things like the subway. I mean look at outdoor dining. I know we'll probably talk about regulations and stuff, but they were able to stand up this program that basically costs nothing for permitting licensing. You don't have to go through this whole red tape related application process. You self-certify and it's working. I think we need to look at what we've been doing during this crisis that's actually worked, that's created a more livable New York City, that's cut red tape, that's improved and enhanced people's lives, and let's double and quadruple down on that, and let's also quadruple down on what the ass of people are.

Andrew Rigie:

I know there's the big picture issues, listen to mayor earlier. Well, I need long-term spending, we need to raise taxes, we need to do all this, and those are big pictures, but what about what can our government leaders ask us to do currently to make our city more livable? I feel like if people do have a commitment or engaged to do something that helps, I think people tend to embrace that and follow leadership, but if all they hear is about the doom and gloom and this is bad or it's this side versus that side, they're going to play into it and amplify it on their social media channels and everything.

Andrew Rigie:

I'd love just everyone to know what's one thing they are doing to help keep and make the city a more livable place on the other side, and I think with, however, many eight million plus people that are here. I mean that could be eight million commitments to the city. [Crosstalk 00:40:30].

Michael Hendrix:

Go ahead.

Steven Soutendijk:

I was going to say that's a really good point Andrew made. Everybody who hasn't, left who stayed is invested in this city in some way, shape, or form. There are seven and a half or eight million people that are invested in New York, where they own their apartment, they own their business, they're a commercial real estate broker who can't do what they do anywhere else in the world and wouldn't want to do it anywhere else in the world, or they're just New Yorkers, those people really do need to be asked to chip in a little bit. I think Andrew's point is a really good one.

Steven Soutendijk:

If there's a sense of community, if there's a sense of we're all in this together, and I think that that sense definitely existed in spades in April and May when you'd stick your pot out the window and you bang it at 7:00 p.m. every night for 20 minutes. I mean there was a sense of community everybody that was in Manhattan or in New York at that time, the people that had stayed. I think that we'd certainly need to find that. Again, we lost it a little bit over the last couple of months, and it does start at the top. We don't necessarily have a cheerleader in the mayor of New York, or at least a perception that he is a cheerleader like Cuomo might be perceived. I'm hopeful that somebody steps up and fills that role in public office.

Michael Hendrix:

I think there was a great point raised earlier about lessons learned from this crisis. It seems like one of them is just the sense of leadership that we need that, and we need people to bring us together and ask what we can do for our city, just as much as they are doing something for our city. Just to move to that policy debate, so cash seems like a problem. There's not as much of it now, not as many tourists spending it, not as many people feeling I guess safe to go out. What is the answer to that? Rent seems like the biggest monthly burden when it comes to cash.

Michael Hendrix:

If you're not having enough cash coming in, but a business has to pay cash out and then you in turn as a property owner maybe have to pay that cash in turn to a lender. There seems to be a problem and especially when aid does not seem to be forthcoming, whether from the federal level or also the budgets to the state and local level, it seems like a worst situation every single day. What is the answer to rent? Are there differences of opinion here among renters and property owners?

Paimaan Lodhi:

Paimaan, you want to take that?

Steven Soutendijk:

Yes. Look, we talked about whether or not landlords are negotiating. I think I don't know a single landlord who is not entertaining conversations with tenants. Do they want to broadcast that widely? No, but I mean that they are making consensus on trying to work. They recognize we're all in this together, but Michael, I would just flip it a little bit because you talk about the biggest expenses put aside, but really it's how are we going to increase the revenue that they have, and that's really a byproduct of pandemic, which is shutting down commerce in our city and our state. You said it before, we have to get past this pandemic and we need this lifeline, and we get to a place where we have a back seat and life can resume somewhere back to normal.

Steven Soutendijk:

I just can't under count how or I can't undersell how important it is that we get federal aid because if we do not, then we're just going to have this vicious cycle downward of reduction in services, reduction of quality of life. It's just going to further potentially push people out of the city because of that.

Michael Hendrix:

Right, right. It can't seem important enough to just stress how much we need to tackle this virus and get it under control. Everything else just almost seems secondary. We can't get COVID-19 under control and have some solution here. I should also mention too, there's not only rent, but there's also property taxes, right? I mean that's another big burden here.

Steven Soutendijk:

Yeah. I mean property taxes take, what, somewhere anywhere between 25 to a third of the rent. Since the start of this administration, property taxes for retail spaces have increased 50%. They only keep going up, and some sort of benefit and people... Property taxes have been the biggest driver of rent in the city, but we do need some relief on the city and the state level, and many of us were calling for a variety of things. One was just can we just get a freeze on both rates and assessments? Just don't make us feel any more pain that we're already feeling right now. Is there any flexibility that the government can offer, whether that be can property owners and tenants pay their property taxes on a monthly basis?

Steven Soutendijk:

Again, this is the last piece related to beef and it might be minor, but if you're really struggling, this is a big deal, is if you were late on your property taxes, you get hit with an 18% penalty. Right now, that just seems extremely punitive. We recognize that you can't bring it down to zero because you need some incentive for people to pay their rent, but somewhere reasonable around 3%, s you're not further punishing people who are already struggling.

Michael Hendrix:

Andrew, how do you respond to that and also Andrew, I know that you've been negotiating, not only with city hall, but also up in Albany on the rent question, and also just how to keep enough cash to keep businesses around. How do you view that?

Andrew Rigie:

Yeah. This is I mean the difficult question. The money needs to come from the federal government. The state and the city just do not have it and mind you, in most leases or many leases I should say, the commercial tenant is paying a portion of those property taxes, and these property taxes are helping fund the city's essential services. I do think there should be some analysis done to look at if we're able to reduce these taxes and keep these businesses and the economy moving, what kind of economic activity is that going to create? About a year and a half ago or so, the city through the office of nightlight put out an economic impact report of the city's nightlife industry.

Andrew Rigie:

It was something it generates $35.1 billion in annual economic activity, and that did not even include restaurants operating for brunch and lunch service. I think we need to look at if we're able to reduce the tax burden on this category of businesses, landlords, et cetera, and keep them moving, what does it mean for the greater economy? New York City restaurants, so many of them are buying their produce from farmers in upstate New York or the oyster and fish mongers from Long Island. When people come in, they're going to go out on a date or go out somewhere. They go to the barber shop and they get a haircut, bring people back to work.

Andrew Rigie:

If these people 160,000 of them approximately that are still out of work that used to work in restaurants and bars pre-pandemic, if they don't get back to work, what is the cost to society both in dollars, but also social dollars to our city?

Andrew Rigie:

I really think we need to look at the analysis of all this, and there's going to have to be really tough decisions made and everyone is going to have to suffer a little bit, but I think this is the time where we really need to determine where can we make cuts in our spending, where can we generate additional revenue where appropriate, but then also, where can we reduce these expenses to these people, these businesses to help them long term be able to generate the economic activity that's going to be able to fund these services again, because it's this big puzzle and a lot of the conversations tend to happen in silos.

Andrew Rigie:

I think they need to happen more big picture, and then we just need the political will to get big things done. My biggest concern is like the lack of taking any real big action just is almost as bad as not doing anything or just tinkering around the edges. I think... Go ahead, yeah.

Michael Hendrix:

To play devil's advocate, there's a question from our audience here, Clifford. He asks, "Is keeping businesses on life support counterproductive? What if the alternative is just let businesses, let owners go bankrupt, let rents fall quickly, just make everything clear and have new businesses arise in a sound or financial footing? Shouldn't we just embrace that?" What's your response?

Andrew Rigie:

Well. Oh, let's see, I have a response, but Steven can...

Steven Soutendijk:

I think that that ignores the fact that we're in a pandemic, and it suggests that these restaurants aren't doing well because they're not good operators. I mean they're not doing well because they were forced to be closed for three full months, and now they're forced to occupy only a handful of seats out on the sidewalk and survive on takeout and delivery in a business that historically has the thinnest of margins. I don't think that we should let them all fail because that suggests that they've done something wrong. This is a shared pain we're all suffering through here. I think Andrew you probably were going to say something.

Andrew Rigie:

Yeah, yeah. I mean basically, yeah, whatever it's your philosophical approach to all this, but like Steven said, these businesses were mandated by government to shut down. It's not because you didn't like their burger, you didn't like their service. They were shut down by government. Now we need that same government to help support them and bring them back. If you were just to say let everyone fail, my concern is what does that do to our society? I mean there's more than 25,000 eating and drinking establishments, employing 300,000 New Yorkers in the city of New York pre-pandemic. Many of these people do not have opportunities in the workforce anywhere else.

Andrew Rigie:

People have their livelihoods in these businesses, so you'd really be just letting the whole social structure of the restaurant industry and the economy collapse, and then the people that would come back would be people on the sidelines that have money somewhere and they'd open up, but you're still going to have to deal with all these other people and all these other businesses at some point. I think that would probably just exacerbate it, but to what Steven said, I mean we didn't shut down...

Michael Hendrix:

Seems like you're pointing to an important differentiation between what is aid for a crisis versus what is a bailout, and we're talking about aid.

Andrew Rigie:

Yeah, exactly. People always say we need this restaurant bailout and I'm saying, "Stop, stop, stop," and maybe some people don't like it. If an industry screws up and you have to give them money to bail them out because of their screw-up, that's a bailout, but we didn't screw up. We basically followed what you mandated us to do. Now we need you to help support us get back moving again and yeah, restaurants are just part of the social economic fabric. With restaurants going, so does so much of the economy. I mean talk about New York City dying. You let half of these restaurants go or more. I mean what kind of city do you have left and how much [crosstalk 00:52:10].

Paimaan Lodhi:

Yeah. It's not like these small businesses engaged in any risky behavior beforehand where a bailout would be unconscionable, or let's not call it a bailout, aid, right? The other point here is that it neglects what could be quite a devastating humanitarian toll on the city with the loss of the livelihood, and what that means to the city long term. We might just have even more of a crisis or deeper hole to dig out of after we're past the public health crisis now, which is [crosstalk 00:52:42] somewhat temporary.

Michael Hendrix:

Yeah, and it's also important to clarify the differences between main street restaurants versus some retail in a period in which retailers undergoing some structural changes and how retail occurs. I know that we're with short on time. I think that's a whole other discussion, but that's an important differentiation. This is a really complicated topic, but right now, there's a crisis and that is should be focusing minds on how to keep these businesses alive. Now someone said too that we should never let a good crisis go to waste. What else can we be doing with that mindset? Never let a good crisis go to waste. I know that you also mentioned an opportunity to reimagine permitting.

Michael Hendrix:

City bureaucracy really seems an opportunity here. We showed with outdoor dining that bureaucracy could turn this on a dime, at least relative to what it was before to streamline and help small businesses keep around. Do we have any more thoughts on that and what else that we could do in this moment of crisis?

Paimaan Lodhi:

Well, I mean I [crosstalk 00:53:49]. No. I mean I think one simple exercise to do would be to speak to these restaurant tours who are considering moving to Nashville, Austin, what have you, and look at the permitting and the bureaucratic process those cities and see why can't we adopt those measures. They should be simple enough, right? There are some other policy ideas out there too, which include conversion of these class B and C office spaces to residential to create more mixed use neighborhoods like in areas east midtown or the Garment District. We've all seen the success of Manhattan.

Paimaan Lodhi:

There's a proven model there and to Steve's point earlier, the retailers who were doing well right now are the ones who are basically supporting neighborhood services. Yeah, I think there are a lot of good policy rationales for just moving to the framework and [inaudible 00:54:51].

Andrew Rigie:

Yeah. I mean there's so many. There's big picture and small picture medium. I mean one thing, one of the biggest challenges for restaurants were all like the fines. You get ding from this agency, ding for that. I would say every single violation that the city, every agency issues small businesses. If it does not pose an immediate hazard to the public or to workers, you should provide them a cure period or a warning before a violation is levied. Inspectors should come in and say, "Hi Mrs. business woman, this is a violation. This is why it's a violation and this is how to correct it and if we come back in six months and it's not corrected, well then we'll issue you a fine."

Andrew Rigie:

I think that would change the relationship with the city to make it more educational and collaborative, and not so fine first focus. Then other things like sidewalk cafes. If you buy a new existing restaurant and they have an enclosed sidewalk cafe, well you can just go into that business and operate that cafe until you get approved for the cafe with the permit, but that doesn't apply for a sidewalk cafe that's unenclosed. If there's an existing restaurant with a sidewalk cafe there and you go purchase it, why can't you continue to operate that sidewalk cafe that's unenclosed until you can get the permit transferred into your name?

Andrew Rigie:

What happens now is if you buy a restaurant going into the spring, you could basically lose out on the whole business of sidewalk cafe revenue because of the timeframe and process it takes to get that cafe permit in your name. Why don't you transfer it, let that restaurant operate under the same stipulations, and requirements of the previous owner and keep operating? [Crosstalk 00:56:44].

Paimaan Lodhi:

I think the theme that Andrew's pointing to here is that we need to move away from viewing fines as a significant source of revenue for the city, right? The city should be much more focused on the customer service and aiding small businesses and helping them stay in.

Andrew Rigie:

Yeah.

Michael Hendrix:

That customer service perspective seems really important. Steve, New York city is becoming cheaper. What does that mean in some sense? What does that mean for the future? How can we continue to make New York city a great deal for as many people as possible? I think one concern is not only that people have been leaving during COVID-19, but they were leaving even before then. It's really tough to get people to move here. It seems like international immigration has been down. How can we continue to make New York city the most attractive place to be in for that kind of opportunity?

Steven Soutendijk:

Well, look, I think that, and Andrew and Paimaan have talked about this as well, restaurants, entertainment, nightlife, Broadway, the theater, the cultural aspect of New York, it's unparalleled and I think that that is not going anywhere. I think it's going to need help, especially recovering from what has been a really challenging last six months for a lot of those cultural institutions, but that is one of the things that makes New York the best city in the world, and I'm confident that that will help bring it back. Affordability is an important part of New York. I think development has a lot to do with that. I think zoning has a lot to do with that.

Steven Soutendijk:

I think there could be a lot more flexibility on what people are allowed to build to make it slightly more affordable to live in New York, but I'm confident that that's going to happen, and I'm confident that the city can support another couple million people. We'd love to see it, and I think it's going to be great. I really do. I'm so hopeful for our future. I am concerned about the short term, but I have nothing good faith in this city in the long run.

Michael Hendrix:

Well, it's a great news to end this on...

Paimaan Lodhi:

One plug. We got...

Michael Hendrix:

Oh yeah, go ahead Paimaan.

Paimaan Lodhi:

Everyone has to fill out their census. We stand to lose three billion dollars for the city. Please fill out your census.

Michael Hendrix:

That's a great point to end this on, and I think this is really important. One thing that we heard was ask not just what your city can do for you, but what you can do for your city. We need to not let up on leadership noir and tackling COVID-19 and New York City and its main streets can be better than ever. Thank you all for participating this and thank you all for tuning in.

Andrew Rigie:

Thank you.

Paimaan Lodhi:

Thank you.

Steven Soutendijk:

Thanks Michael. Thanks guys.

communications@manhattan-institute.org