Making a buck during Covid-19 as the state reopens is now more difficult
By Olivia Palmer
Seattle’s eviction moratorium will soon be over – but for small-business owners like Dave Montoure, the effects of the pandemic won’t be.
“The impacts are here, and they're serious, and they're not done,” said Montoure, founder and owner of the West Seattle restaurant and cocktail lounge, West 5. “It’s going to take me years to recover from this.”
Montoure said COVID-19 restrictions meant his business lost practically its entire holiday season last winter. Capacity dropped. Profits plummeted. But West 5 is far from the only business that has faced hardship over the last year and a half.
While practically all labor industries in Washington were affected by the pandemic in some way, Anneliese Vance-Sherman, a regional economist with Washington’s Employment Security Department, said leisure and hospitality were by far the hardest hit. Vance-Sherman said the industry lost 40% of its jobs in just two months at the start of the pandemic; for comparison, the construction industry lost 35% of its jobs over the course of two years during the Great Recession.
As Washington’s economy reopens, Seattle’s commercial eviction moratorium, which protects nonprofits and small businesses with 50 employees or fewer from eviction, is set to expire on Sept. 30.
Sandip Soli, an attorney with the Washington State Bar Association and partner with Real Property Law Group, said many businesses and landlords negotiated rent reduction, deferral or forgiveness during the moratorium. Commercial leases tend to be longer-term agreements than residential leases, giving landlords incentive to negotiate with their commercial tenants.
“The term negotiation means there's kind of wiggle room for different parties to get different things that they want out of the relationship,” Soli said. “And with leasing, it's a long-term relationship. Often leases are five, 10, 15, 20 years, and so they're negotiating provisions looking out into the future, whether the economy dips, or increases.”
Soli said during the eviction moratorium, he saw some landlords and tenants negotiate a percentage rent model, where a business agreed to pay a flat rate for rent and a designated percentage of their monthly revenues.
“We negotiate with landlords to say, we can't really predict how fully we're going to be open, and how many customers are going to come back, and how much revenue we’re actually going to make. But if the customers come back and we do actually get some revenues, how about you get this percentage of that revenue?” Soli said.
Another focus of lease negotiations during the pandemic has been the force majeure clause included in some leases, in law it provides details on lease terms in the event of unforeseeable circumstances like natural disasters that prevent someone from fulfilling a contract.
Moving forward, the events of the past year and a half will likely impact the way force majeure clauses are written, Soli said. Landlords will want language that enforces payment of rent, addressing pandemics, government mandates and even riots and protests. Tenant attorneys will want to write in language that forgives or defers rent.
Montoure said he was given limited concessions and offered one rent deferral by his landlord. With the help of two Paycheck Protection Program loans, he was able to stay current on rent throughout the eviction moratorium. Despite this, he said recent negotiations for a lease renewal were far from what he expected them to be.
Montoure is in year 19 of a 20-year lease. He said when he spoke to his landlord about renewal, he hoped to negotiate three years of locked-in rent. Instead, his landlord proposed a 55 and then 70% increase in rent.
“I was shocked,” Montoure said. “I did let the landlord know that my business was hurting severely and it would take time to recover, and that I was hopeful that a new lease would reflect some of the damage and harm that came to my business because of the shutdowns. That was not the case.”
The Sept. 30 end of Seattle’s residential eviction moratorium could also have an impact on businesses.
The combination of rent being due and unemployment insurance expiring will likely bring many people back to work, Vance-Sherman said. Not only was the job search requirement for unemployment insurance reinstated July 4, ESD’s Pandemic Unemployment Assistance program and weekly $300 unemployment premium will also disappear after Sept. 4.
Because industries like leisure and hospitality are continuing to recover, Vance-Sherman said their demand for labor is extremely high. That high demand, she said, means workers have more bargaining power, especially for lower-wage jobs. High demand and increased bargaining power don’t always translate to jobs getting filled, though.
Montoure said he’s struggled to find line cooks and prep cooks as he tries to more fully reopen West 5. Not only does he see a lack of candidates with the right experience, but he also feels a responsibility has been put on front-of-house workers to enforce COVID-19 mandates, making those jobs more demanding.
“We're all struggling and looking for folks that can work in this industry,” Montoure said. “We lost about 80,000 workers nationwide in hospitality that will never return, and I don't blame them.”
Vance-Sherman said other barriers to employment also exist. The new role of technology in many workplaces could take some in-person jobs off the table, or limit options for those who missed out on the virtual learning curve. Questions surrounding childcare also pose a barrier.
“Childcare was already challenging in terms of accessibility and affordability, even before going into the pandemic,” Vance-Sherman said, adding that the pandemic has exacerbated those challenges. “I think there's still a lot of uncertainty around young children being able to access the vaccine and what school is going to look like in the fall. So I'm expecting that in about October, we'll start to see how many people are jumping back into the labor force.”
Steve Burke, western Washington regional director of the Washington Small Business Development Center, had a similar perspective.
“Parents have to worry about all of that in addition to realizing that any supplemental federal unemployment is expiring, that they may be facing eviction, and at the same time, figuring out how to look for work if they're ready, willing and able,” Burke said.
As lease negotiations and employment evolve, so do the realities of COVID-19. A surge of the virus’s Delta variant and consequent re-establishment of mask mandates are reminders that the pandemic isn’t over.
Beacon Business Alliance Director Angela Castañeda said small micro-businesses, especially those run by immigrant families or BIPOC women, are often the most vulnerable to disasters like the pandemic.
“Those businesses that are furthest from opportunity get left behind. They get left behind when there's no COVID,” Castañeda said. “If you're operating in an ‘emergency put the fire out’ kind of climate anyway, and then COVID comes along, then you can imagine it's just really difficult when the bargaining power that potential employees have in returning to work may not get very far.”
While the pandemic has presented many setbacks, Vance-Sherman said industries’ rapid recoveries also remind her of businesses’ resilience and ability to adapt.
Sherman said following their initial drop at the start of the pandemic, jobs have increased quickly compared to the normal aftermath of a recession. Unemployment insurance claims have also dropped substantially. Businesses have invested in plexiglass barriers, learned how to go remote and engaged in a variety of other creative solutions.
“A lot of people have learned the key importance of how they actually put together a plan so that they can regrow, grow or pivot their business as they come out of this pandemic,” Burke said.
For those businesses still uncertain of what the future holds, Burke said seeking out resources and creating a plan is paramount. Business owners can access culturally relevant technical assistance through the Washington State Department of Commerce, and learn about additional resources through the Washington Economic Development Association, Seattle Office of Economic Development and smallbizhelpwa.com.
“In our work, we see businesses that are running on the edge all the time,” Burke said. “And those ones who are the most successful are the ones who are always out looking for information, seeking data and collecting information about whatever is going on.”
I feel awful for the restaurant folks that have been impacted, but ZERO sympathy for an owner who forced his partner out, treated his employees like dirt and walked away with all that PPP money.