Market Watch

Why Three-Star Dining Is Dead: A Chat With Steve Kamali

Dr. Steve Kamali.
Dr. Steve Kamali. Photo: Kamali & Co.

Steve Kamali, restaurant broker and nightlife whisperer, has been a friend of ours since he came onto the scene in 2005 and started e-mailing his listings around behind the hard-sell subject line “NYC for Sale!” Although some of his clients are still of the cut-rate variety, today he represents plenty of serious players as well, all of which look to him to tell them where and with whom to open their next venue. One of his current projects, for example, is a complete overhaul of the food-and-beverage program at the Paramount Hotel (scoop: look for the Diamond Horseshoe to be resurrected). We chatted him up at Soho House last week to get his take on the state of the market and what the current recession will mean for the restaurant business in 2009 and beyond.

Steve, thanks for coming. First, you mentioned you had lunch in midtown, and it’s hard enough getting you to cross 23rd Street. Anything we should know about? Actually, I had lunch with Marcus Samuelsson. We chatted about the state of the economy a bit, and of course how it was affecting the restaurant industry as a whole. How’s Marcus? Marcus is great! He’s got a lot going on in Europe and he is developing a few projects in New York as well. He’s really excited about some new concepts that he’s launching here.

Just as long as it’s not another Merkato, we’re looking forward to seeing what he comes up with. So, close to 100 substantial restaurants have already closed in 2009. Where are we on the curve? Is the worst over? Are we still in a downward spiral? I think you should preface by saying that New York City has over 8,000 restaurants, bar, and lounges. And that’s by the State Liquor Authority’s count. So, I can tell you that 91 restaurants closing in 2009, or in any year for that matter, is not really an incredibly high number. I don’t find it to be terribly disappointing, and I do think that we’re going to continue to see closures all across the country, not just in New York.

But even if the numbers on their face aren’t alarming, you’d be hard-pressed to find a restaurateur who thinks times are good. Check averages are down, covers are down. Do you think this is going to get worse? Yes, I do think it’ll continue to get worse before it gets better. At least until operators become smarter about their concepts and until they learn that they can’t spend as much money building out venues as they have in the past. It’s really a question you have to ask the operators. Are they going to continue to put out the same concepts — and make the same mistakes over and over again — or are they going to become smarter about it? Start saving money and start creating smart concepts that suit the times we’re in … concepts that have value for the customer.

What do you mean by smart concept? To me, a smart concept is anything that is within the quick-serve or casual-restaurant genre, whether it be a burger concept, a dinerlike café, something with comfort food — or a coffee-and-brioche spot with items to go. I’m talking about low-ticket items, anything that doesn’t require a $3 million build-out, where check averages are below $15 — to me, those are smart concepts.

Where are you eating right now? Actually, I’m eating at the same places I always eat at. I probably shouldn’t say that! Aren’t you eating in the same places? Balthazar, Lure, Spotted Pig … places like that, yes. So, along those lines, I’m eating at the same places. I’m not eating at expensive restaurants, somewhere in midtown or at the Time Warner Center. I’m eating at the Pig, I’m eating at Sant Ambroeus, I’m eating at Pastis. The point is, and that I was making, is that I’m eating in places I feel comfortable in. I’m not reaching for anything new, I’m not changing my patterns.

All right, you’re a real-estate broker. Let’s talk listings. A year ago today, how many listings did you have? Fifteen or sixteen, I think. And how many do you have today? In excess of 50. Not all of them have been released yet, because we’re timing them. We want to make sure we don’t flood the market. So restaurateurs are trying to get out? Restaurateurs are definitely trying to reposition themselves. And if they can’t, they have to resort to selling their leases.

Are you going to be able to sell them? I think we’ll be able to sell them, so long as people become more reasonable with their pricing. I think that venues are just beginning to price themselves to the times. Whereas three months ago, even 30 days ago, people hadn’t done that. People looking to sell their venues are just starting to price themselves to the new economy, which other sectors of the real-estate market have already done. This is why you’re starting to see action in other parts of the market.

A year ago, what did your standard 50- to 100-seat restaurant go for? And what’s it going for today? Typically we were talking about $500 to $600K key-money range. [Ed: Key money being the dollar value placed on the assets, physical and otherwise, that the venue comes with.] If someone is in a position to sell now, they’re typically asking the same amount of money, if not more. But truth be told, a lot of deals are coming directly from landlords, so they have real competition. It’s restaurants that went out of business, when they didn’t pay their sales taxes or whatever and now they’re out of business. So we’re getting them directly from the landlords without any key money.

So, the reality is that the days of $500K key money are over? It’s a hard question to answer. The people that never deserved key money in the first place, for venues that aren’t worth the key money, those people are definitely not getting it today. But if you own a nightclub or a bar in an ideal location — someplace highly trafficked, or it’s in the meatpacking district or West Chelsea, or you’re a restaurant owner in the West Village — the truth of the matter is that your world hasn’t changed as much as compared to the restaurant or bar owner on Second Avenue south of 14th Street who is competing with 100 other guys trying to sell or lease a space in that area.

There’s definitely still plenty of value in a liquor license. We won’t take a space that doesn’t have one, actually. So if you’re asking, Are there more spaces available than ever before? Yes. But most of them have closed and therefore lost their liquor licenses. Those spaces are out of circulation — and, as I said, we don’t consider them part of the city’s bar-and-restaurant inventory.

Let’s look out twelve months and talk about the consumer. What kind of restaurants are we going to be going to in twelve months? I think you can compare restaurants to real estate. There are a lot of people sitting on the sidelines, waiting for intelligent real-estate plays the same way there’s been a lot of restaurateurs with great concepts, but they haven’t delivered them. They’re waiting for the right opportunity. The large restaurant groups have lots of unique and interesting ideas as to what they’d like to do, but haven’t executed them yet because they haven’t found the right deals. Well, now they’re finding the right deals.

The stronger operators that own multiple restaurants are calling us more today than they were six months ago and a heck of a lot more than they were calling us a year ago, because they realized there’s opportunity out there. This is the time for people with big money behind them to start launching great, casual restaurants.

Three-star dining might be dead, but New Yorkers are resilient and if you look at how they spend their money, the majority is spent on entertainment and dining. People are making less money, but I don’t think this will ever mean people go out less. They’re just going to spend less when they do. You still have 1,200 people walking through a nightclub on a good night. They’re just not spending $100 a head; now they’re spending about $45 a head.

I think you’ll also see a slowdown in the number of steakhouses that open. The institutions will hold on, but I don’t think you’ll see any high-priced steakhouses, or even French restaurants, opening. But I don’t think we’re going to see a real slowdown in the number of neighborhood restaurants opening.

That doesn’t bode well for the Rainbow Room, speaking of a venue that’s closed. I think the Rainbow Room is spectacular. A New York institution. It should go to a chef that’s a multiunit operator that has a presence in New York. It should be a great American bistro. It shouldn’t be a fancy French restaurant. If I had to throw a name out there, I think Tom Colicchio would be great in that space.

Frugal Fridays in Rock Center? With those views? It’d be a gold mine! Tom, let’s talk!

Why Three-Star Dining Is Dead: A Chat With Steve Kamali