I love reporting on the downtown restaurant scene because of how much it is growing and evolving, but on the flip side, I recognize that rapid growth comes at a price. In recent years, investors and developers have taken note of Durham’s coolness factor and the dollar signs attached to it.
In one sense, the ripple effect this growth has on local restaurants is good because there is a broader customer base; in another sense, it makes it hard to keep up. This is part of the reason Phoebe Lawless announced she would close the well-established downtown Scratch location and focus her energy solely on her new bakery and The Lakewood, explaining, “That sleepy [downtown] block now bustles. And, especially, downtown has transformed. All the once-empty storefronts are now offices and stores and restaurants and bars. It’s growing at a pace that we aren’t able to keep up with in that small storefront.”
Dame’s Chicken and Waffles was one of the first restaurants to open in the Five Points area, and co-owner Randy Wadsworth recalls, “You wouldn’t see anyone walking around down there. The rent was dirt cheap and very accessible in terms of finding spaces.”
Dame’s outgrew its original home and recognized the need to move. “We wanted a location where customers could be more comfortable and not have to wait in line for sometimes over an hour,” Randy and co-owner Damion Moore share. Dame’s new space, housed on the ground floor of Liberty Warehouse Apartments, will be close to double the square footage of their old spot on West Main Street.
Much like Scratch chose to move to a trendy part of town (Lakewood), Dame’s settled on their Liberty location in the Geer Street corridor because that area also shows significant signs of growth, not to mention Liberty Warehouse has its own parking deck in which 75 spaces are allotted for retail customers, helping mitigate the growing downtown parking dilemma.
For these older Durham restaurants, the timing worked out. They were established before the market was hot, and as the city grew, so did their brand and reputation, so now they can make these critical moves. But for newbies, it might be more difficult to get a foot in the door.
Even for established restaurants, the cost of leasing downtown has become a huge barrier, and some have sadly closed. We also see it in areas like Ninth Street, where eateries like Francesca’s have closed due, at least in part, to steep increases in rent.
Navigating the leasing maze, and quite frankly affording it, is not easy. This has prompted restaurants such as Beyù Caffè and Old Havana Sandwich Shop to move and take the leap to space ownership.
After a couple of years searching for leasing options (even outside of Durham), Old Havana owners Elizabeth Turnbull and Roberto Copa Matos started looking for a space to purchase for their new concept, COPA.
“Given our connection to Durham and our belief in the importance of locally supported business, it was our preference to lease from independent landlords,” Roberto says. “But [local landlords] have less inventory, and typically less capital to help tenants with build-out.” And many of the available spaces downtown are on the small side.
With this in mind, they simultaneously explored options with some of the new downtown developments. “At the moment, that usually means moving into new construction and starting the build-out from scratch,” Roberto says. “Even with landlords pitching in some of the costs, it runs very high. Not to mention, [out-of-town] development companies have less stake in the local market and can easily opt to work with out-of-state chains or larger local businesses.”
The business model is a challenge for small businesses. Lease rates with new developments are currently premium market rate with sizable add-on costs. “In one existing restaurant space owned by a large developer, our rent would have been more than $40 a square foot, bringing our total monthly payment to more than $12,000 for a relatively modest space,” Roberto says.
There’s also the vulnerability of lease renewals, true for both large developments and independently owned spaces. Down the road, and after investing so much money in build-out, the tenant could easily be pushed out due to a building sale, change in ownership or rising rents.
Of course, purchasing commercial real estate is a big commitment. For Old Havana, Small Business Administration (SBA)-backed financing and Celtic Bank helped secure the loan. In the end, for about the same capital as leasing, they were able to purchase the former Revolution space at 107 W. Main St., tackle most of the needed maintenance and renovations, and purchase new equipment. They also ran a Kickstarter campaign to help cover renovation and furnishings not financed through the loan.
“I do think we are seeing an increase in ownership over leasing as a natural byproduct of development in downtown and the need for local businesses to lock in a long-term solution,” adds Beyù owner Dorian Bolden, but it’s risky. “A three- to five-year lease obligation is a smaller risk than a 15- to 30-year mortgage and the cost of building maintenance and property taxes. So, business owners have to fully vet both options.”
Purchasing a space also allows owners to challenge themselves to grow in new ways. Summer Bicknell, owner of Locopops, began looking for a new space due to limited parking at the spot she was renting on Hillsborough Road. As she searched close to the original store (not wanting to lose her existing patronage), she realized she would rather buy and found the perfect spot at 2618 Hillsborough Rd., figuring she could utilize the space better if she expanded the menu into a broader range of desserts.
GETTING A FOOT IN THE DOOR
When Roberto and Elizabeth opened Old Havana seven years ago, they had zero experience and one-third of the capital, and there were more potential spaces for lease that were all owned by local, independent landlords. “Based on our experience, if we were trying to start Old Havana today, with the same resources, it wouldn’t be possible,” they admit. “And that’s something that makes us really sad. How many other Old Havana’s and community-oriented concepts are we going to miss out on as a city because the only people who can get a foot in the door are those who either already have a lot of experience and prestige or those who are coming in with the backing of a franchise or national chain?”
Damion hopes that smaller, local, more nimble concepts and owners still have space in Durham. “It’s where our foodie city found its origins – in the homegrown talent,” he says. “It would be a shame to lose that aspect of downtown in particular.”
“I’d love to see Durham have some incubator space for retail business and restaurant startups, and then help them move on to make room for the next newbies,” Summer says. “Food trucks fulfill this role a bit for restaurants, and pop-ups for retail merchants, but it’d be great to see an American Underground for low-tech, high-touch market entrants.”
One of Beyù’s biggest challenges is being creative with their menu to keep prices affordable. As consumers, we also have to realize that rising rents will reflect on the menu prices. “Right now, you can still get breakfast and lunch downtown under $12, versus in other big cities where lunch is $15-plus,” Dorian says. “As lease rates increase, costs will naturally go up and/or push out small businesses who cannot offer lower prices.”
So much of what has made Durham so desirable are the local, community-centered restaurants and businesses. As the city grows, we’ll likely see a greater mix of local along with regional and national talent step in, but it’s important we continue to recognize the extra challenges small businesses face and that we support them in their moves along the way.