Rent Hikes Will Shutter Two Longtime Union Square Restaurants

After over 20 years in Union Square, noodle shop Republic and seafood restaurant Blue Water Grill will both close in the next year. The culprit is outrageously high rent, with Blue Water Grill facing $2 million-plus annually, Bloomberg reports.

It’s part of a larger issue that Bloomberg breaks down in greater detail: Restaurants, like Union Square Cafe, which faced this same issue in 2014, open in less desirable neighborhoods with affordable 10- to 25-year leases. Then, in that time period, those restaurants contribute to the neighborhood increasing in value, which in turn causes landlords to raise rents to unsustainable highs once a lease is up.

Specifically, at Republic, the 3,800-square-foot restaurant went for $220,000 a year in 1995. Now, owner Jonathan Morr will vacate the space three-and-a-half years early so he can “split the difference between what [the landlord] gets from us and what he’ll get from the next tenant, and call it a day,” Morr tells Bloomberg. Marty Feinberg, of Winner Communications, which owns Republic's building, says that taxes on it have gone up from $90,000 to $476,000 since the mid-’90s. (It’s not clear in the wording whether the landlord pays the taxes or it’s the responsibility of Republic as part of the lease agreement.)

Even restaurants with a lot of firepower behind them feel the squeeze. Tilman Fertitta, the tycoon behind Landry’s restaurant group, now owns Blue Water Grill, but still the rent increase to over $2 million a year is an amount at which “it can’t be successful,” according to a Landry’s spokesperson. (This is also the group that just closed Isabella’s after 30 years on the Upper West Side.) The restaurant is currently searching for a new space. Uber-successful restaurateur Danny Meyer’s flagship Union Square Cafe — named after the very area it can no longer afford — vacated in 2015 after its rent increased fivefold over a 30-year period.

“That area is going to have to become a food desert,” says realtor Leslie Siben of LB Realty Services LLC, “[because] no normal restaurateur with any experience would touch that as it is now.”

This doom and gloom is met with a depressing solution: more food halls. Optimal Spaces broker Stephen Sunderland tells Bloomberg that it’s an appealing scenario for restaurants for its “limited risk” and lower costs to open — or close if needed. On the landlord and developer side, Smorgasburg co-founder Jonathan Butler recently commented on an unrelated panel that “every developer wants a food hall at the bottom of their building or to anchor their big project.”

There is no set date yet for the closures of Republic and Blue Water Grill. Stay tuned for more.

Correction: This story has been corrected to show that Blue Water Grill will close in the next year, not by the end of this year.

• How Rent Spikes Are Creating Fine Dining ‘Deserts’ In New York City [Bloomberg]
• David Chang Warns of Affordable Restaurant Apocalypse [ENY]