DANIEL BOJORQUEZ, the owner of the La Brasa and Fat Hen restaurants in Somerville, is being squeezed by his landlord and the coronavirus.
His restaurants have been shut down since mid-March by the virus and they’re unlikely to reopen before June. Bojorquez owes $13,000 in rent for April and May, and he’s staring at another rent payment coming due on June 1.
He was one of the lucky businesses to land money under the federal Payment Protection Plan, but most of those funds have to go for salaries, which don’t exist with the restaurants shut down. The portion of the PPP funds that can go for rent may expire before his restaurants can reopen. It leaves him in a terrible bind.
“The breathing room has to come from somewhere,” he said.
As the economy slowly reopens, many Massachusetts businesses are finding themselves facing another first of the month without cash flow, and some are running out of solutions as unpaid rent adds up. Stymied by eviction moratoriums, some landlords are tapping their tenants’ last-month rental payments and security deposits and looking for other ways to recoup what they are owed.
Bob Luz, the CEO of the 4,000-member Massachusetts Restaurant Association, said nearly two-thirds of his members are shut down. He is urging them to reach out to their landlords and begin negotiations about how to jointly weather the crisis. He recommends restaurants pay off their back rent over time by giving the landlord a percentage of future sales once they reopen.
That’s what Luz did with a building Massachusetts Restaurant Association owns in Westborough. He’s allowing the eight tenants to pay no rent in April in return for a one-month extension of their lease and an agreement to spread the rent from April out over the remaining months on the lease.
“Ultimately, I think everybody’s going to come to a realization that the smartest thing to do is to work collaboratively with the person that’s already in there,“ Luz said. “Lining tenants up on the back end of leases is never a sure thing.”
There is an incentive for both sides to negotiate. In late April, Gov. Charlie Baker signed a moratorium halting residential and small business commercial evictions during the coronavirus pandemic. It lasts for 120 days, and can be extended for either one 90-day period or until 45 days after Baker lifts the state of emergency, whichever date is sooner. Some municipalities have passed their own commercial eviction bans, including Somerville.
During the eviction moratorium, landlords aren’t able to charge late fees for nonpayment of rent or report the business to a consumer credit agency if it had a loss of income because of the pandemic. But tenants aren’t excused from their rental obligations, which keep piling up.
Rebecca Roth Gullo owns Banyan Bar + Refuge, The Gallows, five Blackbird Doughnuts locations, and Sally’s Sandwiches. She’s laid off 180 of her 200 employees, and sales are down 90 percent.
With about $50,000 a month to pay in rent, she’s had to negotiate for time with multiple landlords. One agreed to forego a month’s rent. Another agreed to defer payments for two months in return for a commitment to come up with the money over the next two years. A third deferred rent for three months, but then required full payment in 90 days.
“I’ll be paying double in rent for the three months after we get the A-OK to open,“ she said.
Joseph H. Matzkin, an attorney who represents over 30 restaurant businesses and chefs in the Greater Boston area, said about 40 percent of his clients are approaching landlords with partnership proposals, meaning they agree to split future proceeds of the business until the rent owed is paid off.
“They [landlords] hate that, but that’s what has to happen. In order to be a partner, you have to go to a percentage. You cannot live with fixed rent for the next 12 to 18 months,” he said.
In some cases, landlords are tapping tenant security deposits, but allowing them a year to replenish the funds. “So there’s a cash flow that’s going to the landlord. This is a little bit creative,” said Matzkin.
Other landlords are foregoing rent until months in the future. But when that date arrives, the payment can be two months of rent at a time, or three even. Some landlords may ask for every missed payment at once, Matzkin said.
Bojorquez opened La Brasa in 2014 and Fat Hen next door in 2016. An immigrant from Sonora, Mexico, Bojorquez moved to the US when he was 20, and spent over a dozen years working at high-end restaurants L’Espalier and Sel de la Terre before opening his own. Less than two years ago, Bojorquez became a citizen during a naturalization ceremony at Malden High School.
Bojorquez began reaching out to his landlord, Jon Pucker, on March 13 to see if they could broker some kind of agreement on rent. He also pursued and secured $200,000 on April 17 through the Paycheck Protection Program, but he’s now worried that money won’t be much help.
The money must be used by June 30 and 75 percent must be used for payroll or it goes from being a grant to a loan. The other 25 percent can be used for rent, but rent can’t be prepaid. Since sit-down restaurants won’t reopen until sometime next month at the earliest, it’s unclear if Bojorquez will even have time to use the funds for payroll. The likely alternative will be that he, like many business owners, will have to return the funding.
Bojorquez is hoping that the federal restraints on the program will be loosened so the money can be used after June 30, but Luz isn’t optimistic. “I think a fair amount of people who got PPP will return it because they can’t afford it if it’s not forgiven,” he said.
Pucker tapped Bojorquez’s $35,000 security deposit, without his consent, to cover rent for April and May, as well as water and sewer expenses. He is asking Bojorquez to replenish the security deposit amount immediately.
In emails with Pucker that Bojorquez shared, the landlord noted that the restauranteur has two years remaining on his lease, and if Bojorquez walked away from the lease, he would “owe 130 Broadway LLC around $352,677 (assuming no increases to taxes).” He recommended that Bojorquez sublease the space, sell the business, or hire a broker to find a new tenant.
The options alarmed Bojorquez, who doesn’t want to lose the business. He offered Pucker a percentage of future gross sales to cover the rent. He acknowledged it could take a while, given that it may take 12 to 18 months to build the business back to where it was pre-COVID.
“We cannot operate in these times with a fixed rent as structured under our current lease and using any portion of the security deposit to pay the rent obligations is not acceptable,” Bojorquez said in an email.
Pucker responded with an email warning that Bojorquez is in default on the lease. Pucker said his company, 130 Broadway LLC, “is not your business partner. We are your landlord. We do not choose how and if you spend your PPP funds? We do not choose if you open for takeout, delivery or as a market. You are in charge of your business and responsible to your lease.”
Pucker initially declined comment, but later changed his mind.
“These have been remarkably difficult times for everyone, and landlords and tenants are certainly facing business and personal decisions that neither have encountered before,” he said in an email. “We have been working every day with all of our tenants to find reasonable but difficult compromises to get all of us through this. I am sorry Daniel decided to share some information with you but not all of the information concerning our efforts, not only over the past few months but over many years, to help his business. We have given him significant relief already and will continue to work with him to find a way that is fair for everyone.“
For Bojorquez, the life he has built is now in jeopardy. “Looking forward, for me to lose the two restaurants would be to lose a child,” he said. “There is no financial dollar amount that can buy love, devotion or the feelings and resources that we have put forth into this space.“