Dear HL Clients and Friends,
Well, Happy Hospitality New Year everyone! I hope you all survived the wildfires, hurricanes, brain-eating oysters, Burning Man muck and all of Ms. Nature’s other indigestive regurgitations, and that you had a chance to get away and unwind a little. Now that we have crossed the Labor Day line into busy season and we are all in the shit, it’s time to kick it into the next gear as everyone gets back into town and industry momentum revs us into a frenzy for the next four months.
And wouldn’t it be great during this busy time if we could keep outdoor dining sheds up through the the end of the season to meet the demand? But, thanks to our unprincipled politicians who caved to Nimby pressure, we gotta raze our roofs and pull it all down right in the middle of everything. And just in time to cram in our customers for the reliable winter Covid surge. Smart! Oh, and then we have to store it nicely and safely with all of our extra space and money so we can put it up again in a few months. No problem! I know that this is being spun as a victory for the industry but the lack of logic and reason displayed in the decision is mind boggling and it just results in another needless and recurring bureaucratic nightmare. A prime example of the feeble work product of our dearly elected. Mug shots and beers on the house for all our politicos!
And despite New York City’s firm grip on the title as The Country’s Least Hospitable City to The Hospitality Industry, we are seeing big action and exciting deal flow here, and all over the country, for that matter. Hospitality groups are feeling bullish and they are growing and branching out in many adventurous ways as they recognize that there are profits in proliferating.
The more the restaurant groups spread out their footprint and diversify their portfolios, the more profitable they are becoming. Our clients are expanding by making and selling CPG’s; creating or advising on food tech projects; booking media spots and writing books to grow their brands; signing management agreements and licensing deals in hotels, airports, and on Mars; and signing up with talent agents. They are aggressively pursuing these and other low risk, money making ventures in an effort to bolster the bottom line. They are also cutting deals in smaller cities and around the globe in an effort to widen their scope of products and services beyond brick and mortar. Restaurateurs realize that relying on the mini-margins in leased spaces alone in NYC is no longer a viable long-term business model.
Getting back to optimistic signs, we are also seeing big investments in New York from overseas restaurant groups and vice-versa as there has been a big demand for NYC based concepts abroad. It feels like the F&B world has opened up and that we are at the beginning of a renaissance. The land is fertile folks, and the hospitality industry is primed so make your move and grow, grow, grow!
So, a Happy Hospitality New Year indeed! Push those PDR parties, beef up your wine cellars, pack ’em in tight and I hope you make some good money over the next four months. You deserve it!
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|Real Estate Recap by David Helbraun, Founding Partner and Chairman
Overall, we are seeing a healthy uptick in real estate transactions at the firm. Leases are getting signed and key money deals have picked up with lots of restaurants and bars changing hands. Good bargains are out there too as we are seeing ranges from 100K to 400K for some nicely built out spaces. Buyers are realizing that key money deals for second generation spaces are worth it when they factor in the high cost of labor and materials, the lack of available GC’s and SLA delays. It has become quite appealing to find something built, do a key money deal and get open with less stress.
And sellers are bailing sooner if they are not squeezing enough profits from their shops. They are seeing that it’s easier to sell with more years left on their lease and are trying to recoup as much as they can from the sale and return of the security deposit (it’s always included in the deal). So, if you’re thinking about selling and want to know your options, call us and we will talk you through how to do it right.
Now, here are some RE trends and observations from our friends, the brokers, who are out there on the street and cutting deals everyday:
From Cosmo Montemurro at Murro Realty:
Rents have been neutral as Landlords are realizing that getting more rent also means adding more risk. Rent sustainability is the new higher rent and Landlord’s are being more cooperative with tenants.
Upper East, Upper West and West Village are hot neighborhoods with scarce available spaces as people are staying in the hood rather than go to the office and consuming and boosting revenue for local establishments.
From Michael Azarian, Cushman Wakefield:
- Demand remains high for restaurant ready space across all sectors of food & beverage.
- Class A office landlords are seeking best-in-class restaurant operators to attract and maintain top tier office tenants.
- Restaurant operators are looking for landlords to dig deeper out of pocket with LL work letters and/TI.
- Longer free rent periods are being realized with challenges with liquor license and fire inspection delays.
- Midtown operators are still feeling the strain with flex work. Wednesdays are still peak days. Mondays and Fridays typically quiet. Creating stress on certain Covid arrears arrangements.
- F&B accounted for 1/3 of all retail leases signed over the last 18 months.
- NYC fast casuals are branching out to the suburbs DIG in Stanford and Just Salad in LI and CT and finding success, beating volume expectations.
- Nationally, NYC operators are looking at markets in FL and TX (Miami area, Dallas, Austin…)
- European and Latin American groups are showing continued interest in NYC and the US, in 2024 NYC a number of these groups open flagship locations in NYC.
- Private Member Clubs with dining experiences have grown in popularity, with private high net worth investor support
- We may see some space come back to the market spring 2024 with operators who signed big bet leases in 2020/2021 and those who have been unable to recover from the flex/work schedules who’s landlords are no longer working with them.
|NEW YORK STATE LIQUOR AUTHORITY UPDATEby Joseph “Joey Regs” Levey, Founding Partner
It is no secret that the liquor authority is a mess – and has been for years, quite frankly. However, recent legislative changes and new key personnel changes have given us hope for the first time in a long time.
Recent SLA Legislative changes that you should be aware of:
- Temporary permits are now available for all applications within the five boroughs of NYC – WITHOUT the need for an asset purchase agreement.
- Beer & Wine temporary permits are granted as of right;
- Full liquor temporary permits are only selectively available, based on a number of factors, and have certain restrictions:
- The space had to have been licensed within the last two years;
- The community board must approve of your application
- Maximum operating hours of a full liquor temporary permit may only go until midnight each day
- Beer & Wine temporary permits are issued within a few weeks of the SLA receiving the application, while full liquor temporary permits take a few months to receive
- Certificates of Occupancy are no longer required to activate a liquor licenses
- They are still needed to keep your business in compliance with the Department of Buildings, but the SLA has removed this as a regular requirement
- They reserve the right to ask for it at any time though, even after your business is licensed. If you can’t produce it, you may have an issue.
- Personal Disclosure requirements have been rolled back
- While an applicant must disclose their source(s) of funds, they are no longer required to provide bank statements with the initial application;
- The SLA reserves the right to request them, and they often do, so it is still good practice to submit them or at least have them at the ready.
- There is no longer a requirement to disclose anyone who owns less than 10% of a business – irrespective of how many total equity-holders are involved with the business.
- The SLA always reserves the right to request a full cap table, operating agreement, etc., but there is no longer a mandatory disclosure requirement for those who own less than 10% of the business.
- Not only is full disclosure (personal questionnaire, fingerprinting, etc.) not required, but no disclosure whatsoever is required, at least at the outset for those owners falling under the 10% threshold.
- Establishments that are licensed to serve alcoholic beverages can now do so on a “to-go” basis in perpetuity, with some restrictions:
- Liquor, including mixed drinks and wine to go must be single servings only, poured into a cup (not original packaging), with a lid affixed
- All liquor to go orders must be accompanied by food
- The sale of bottles of wine and/or liquor to go are prohibited
Personnel changes of note:
A new Chairperson has been appointed to get the SLA back on track. Her name is Lily Fan, she has been a commissioner for the last five years or so, and she is wasting no time in her efforts to fix a broken agency.
Chair Fan has spearheaded a series of significant changes at the highest levels of the Liquor Authority. She has promoted some great people from within the Agency, giving them an opportunity to be more impactful on the licensing process and the overall running of the agency. She also has been instrumental in purging the Agency of holdover employees from prior administrations that have been stopping progress for far too long. She has very quickly begun changing the philosophy and culture of the Agency for the better and it’s noticeable.
Chair Fan is also currently engaging with liquor authority personnel and industry stakeholders to create new, progressive programs which would make the Agency more business friendly. These initiatives include streamlining and governing community board involvement throughout the licensing process, expediting the licensing application process, and entertaining creative solutions to solve the application backlog issue. We will keep you posted as things progress.
It’s Finally Cannabis Timeby Joseph “Joey Regs” Levey, Founding Partner
I feel like I’ve written this same article 20 times. Since legalization, almost 30 months ago, cannabis has been “almost here” more times than I can count. However, there’s good reason to believe that this time it’s for real.
Notwithstanding the lawsuits over the CAURD program and all the other noise out there, the final cannabis regulations are still slated to drop next week, with the application portal allegedly ready to go shortly thereafter (beginning of October).
Could there be further delays? Sure. Additional and unforeseen new lawsuits? Of course. One way or another though, this all will be coming to a head and going live in the very short-term. We’re no longer in a situation where things could be delayed months or years. We are very squarely in a space where any further delays at this point will be days or weeks at most.
For those interested in getting involved in cannabis, we are quickly approaching a time where it may be too late to do what you want to do in the part of town that you want to do it in. Always feel free to contact us with any questions that you may have on this front.
HL Clients Diving Into CPG’s by Teepoo Riaz, Of Counsel for the CPG Group
I am very excited to say that our CPG program launched in June and is successfully up and running. Over the summer, we had the privilege to meet with many clients to discuss the ways in which we can help their businesses. We met with clients whose products are already stocked on shelves, those that are about to launch and those who are still thinking about how to get a CPG product off the ground. As with any business, jumping from concept to reality can be challenging. Here are some pointers about how to get your product from plate to package.
- Hone in on your product. A clear idea of the product you want to sell is key. While there are many ingredients in a successful business, a major key to success is a great product and by great, I mean a product with a point of view that has something to say.
- Research. Having a point of view means your product can differentiate itself from the others in the marketplace. Consumers constantly crave new things and as such every category of CPG is constantly reinventing itself. We see it with everything we eat: animal proteins replaced by plant proteins, wasteful production replaced by sustainable methods, environmentally harmful replaced environmentally friendly, unhealthy replaced by healthy, and distant replaced by local. But to stand out, your product needs a hook, so look to the market and see where the trends are and how your product can feed a desire in a way that the others are not.
- Define your market and customer. Once your product is dialed in, next comes understanding your customer. You want to test your product with a sub-section of your potential audience. If you have a restaurant, you have a built-in customer focus group. Use them to provide feedback. You want to understand how and where they shop, what do they buy, what drives their purchasing decisions and how much do they spend on their items. This information is important as you decide how you want your product to engage with the public.
- Refine your idea. You know your product and you know that there is a market for it. The time you have put in results in getting your product into the package. From here, you can refine the ingredients and packaging. Your choice of ingredients may need to reflect any special certifications you would like your product to have such organic or vegan. Your packaging is extremely important as it is often the first way your customers will interact with your product. Your packaging will need to reflect the values of your brand. It will also be important in the shelf life of your product and in determining where your product will sit in a grocery store.
The initial stages of a new business can seem the most daunting so let us help you strategize a thoughtful and phased approach to launching your CPG products. From entity formation to trademarks, concept to sourcing, production to logistics, retail to distribution, friends and family fund raise to exit, we look forward to partnering with you.
|CATERING AND EVENT CONTRACTS by Andrew Fine, Partner and Chair of the Corporate Group
Event season will soon be in full swing and we want you to be prepped for success. This exciting and often profitable time does come with some risk. Let’s discuss so you can avoid them.
There is perhaps no greater headache for an event host or caterer than a cancelled event. All the time and energy you put into preparing only for a guest to cancel or modify the event at the last minute – it’s a drag, to say the least, and one that occurs all too frequently. That said, your event contracts can help you recover lost costs for a cancelled event.
Recovering lost costs isn’t easy, though, and it’s actually a mechanism that is carefully regulated by municipal codes. The good news here is that these limiting statutes essentially boil down to a simple rule: the termination penalty has to actually mimic the cost of the cancellation. In other words, you can’t put yourself in a better position than you would have otherwise been in if the event took place. But, if you can demonstrate that you spent money towards a scheduled event that was later terminated, you can theoretically recover that cost.
The amount of actual expenses incurred in reliance of a given event is almost always largely, and sometimes entirely, dictated by when the cancellation takes place. In fact, New York City’s rule is that if the cancellation occurs more than 6 months from the event date, it’s presumed that the caterer can reschedule, which puts a lower limit on permissible cancellation fees. Conversely, cancellations that occur closer to the event date itself are presumed more expensive to the caterer, since it’s more likely that the caterer spent resources on staff and inventory for the scheduled event, and less likely that the caterer can reschedule that event date last minute.
So, a good catering or event contract will structure termination fees based on the timing of the cancellation relative to the event date. The closer the cancellation is to the scheduled date, the higher the termination fee can theoretically be.
Unfortunately, many catering contracts out there do not contain detailed remedies for cancellations, and do not afford special considerations to last-minute cancellations. This can make it hard to recover lost costs, and often leaves caterers footing the bill for irresponsible (and disrespectful) consumer behavior.
To avoid this risk, we’d recommend giving your catering and event contracts a fresh read, paying careful attention to your termination and cancellation language. Our team is standing by to assist with that review.
|Employment Updates: End of Year Reports, Non-Compete Agreements, and More by Hamutal Lieberman, Partner and Chair of the Employment, Litigation and Trademark Groups
Layoffs and Furloughs
Many of our clients felt the pain of the summer slowdown that resulted in furloughs and layoffs across the industry. Never fun. But, if you are considering a lay off or furlough in the future, it is important that you do it the right way.
If you have more than 50 employees, you are bound by the New York State WARN Act to give employees at least 90 days’ notice prior to any such mass layoff or furlough event. Moreover, if your furlough extends for more than 6 months, you also must comply with certain notice requirements as if it was a lay-off. Doing it the wrong way can subject you to fines and an investigation by the Commissioner of Labor.
It’s best not to rely on non-compete language in future employment contracts for your high-level employees (or any employees) as the enforceability of those clauses are coming to an end. On June 20, 2023, the New York State Assembly passed a bill that, if signed into law by Governor Hochul, will effectively ban future non-compete agreements for any employee, salaried or hourly, and at any rate. As you negotiate those employment contracts, might as well keep this provision out, as it will likely not be enforceable by the time you need it.
Don’t forget that if you have 100 employees or more you must file an EEO-1 report: The Employer Information Report (EEO-1 report), is collected annually under the authority of Title VII of the Civil Rights Act. Based on the number of employees and federal contract activities, certain employers are required to file an EEO-1 Component 1 Report on an annual basis under the Equal Employment Opportunity Commission (EEOC) and the U.S. Department of Labor Office of Federal Contract Compliance Programs (OFCCP) regulations. This is required by law, and is not voluntary.
I-9 Form Update
A quick reminder that there is a new version of Form I-9 that you must start using by November 1. We recommend adopting this new form as soon as possible.
Employee Relations – PIPS
The last thing we have been seeing across the board is an overall adoption by owners of performance improvement plans (PIPs). Since hiring has been tough, many of our clients are opting to give their employees an opportunity to work on improving through a PIP instead of resorting to firing.
A PIP should include information on acceptable performance levels, specific and measurable objectives that are achievable, relevant, and time-bound, guidance on what management will do to assist the employee, details on progress meetings, and consequences for not meeting the objectives of the plan. If after taking the time to meet with the employee, he/she is still not improving, you have a clear path to termination.
If you have any concerns, give Hamutal Lieberman, Partner and Chair of the Employment Practices and Litigation groups, a call!
|R.I.P – Robbie Robertson, Jimmy Buffet, Paul Reubens, Sinead O’Connor, Alan Arkin and our dear friend, Michelle Gauthier. All so gracious to open up and share their talents with the world.
As Tony Bennett would sing so sweetly: “But I miss you most of all/ My darling/When autumn leaves/Start to fall.” We will miss you so much Tony.
Happy Almost Autumn Everyone.