New York area sees 40% bankruptcy wave, braces for more by Bloomberg

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© Bloomberg. Diners eat outside a French restaurant in front of a window for rent. Photographer: Nina Westervelt / Bloomberg

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(Bloomberg) – The pandemic has hit businesses in New York City, with nearly 6,000 closures, a roughly 40% jump in bankruptcy filings in the region, and closed storefronts in business districts across the five boroughs .

It will get worse.

This fall, the nation’s largest city will see more padlocked doors as businesses burn down thanks to federal and private loans they took out in March, homeowners launch businesses that can’t do rent and weather in free fall cools outdoor restaurants and shops.

“By the end of the fall, there will be an avalanche of bankruptcies,” said Al Togut, a lawyer who has handled bankruptcies of small businesses and large corporations like Enron. “When the cold weather arrives, that’s when we’ll start to see a surge in bankruptcies in New York.”

New York and its businesses have reached a turning point. After more than six months with the specter of Covid-19 hovering in every metro car and corner bodega, the virus is showing signs of resurgence.

New York state reported more than 1,000 new cases on Saturday for the first time since early June. Peaks appeared in the southern neighborhoods of Brooklyn and Queens with large Orthodox Jewish communities, just as they observed Yom Kippur. Meanwhile, principals called on the state to take over schools days before resuming in-person classes, saying Mayor Bill de Blasio had failed to ensure sufficient staff to open safely.

The next wave of business closures will hit all New Yorkers as jobs shrink, neighborhoods lose beloved stores and families run out of cash.

Already, declining tax revenues have led to cuts in municipal services. Garbage on sidewalks, poorly maintained parks and an increase in shootings have made it more difficult to persuade workers to return to their offices, more than 150 executives told the mayor in a letter this month. A shortage of office workers is the death knell for many traders.

“This is a crisis, and we must act – our economy cannot recover without saving small businesses,” said City Comptroller Scott Stringer, candidate for next year’s mayor. “When they close, we don’t just lose our beloved Main Street businesses. We are losing jobs, tax revenues and the economic backbone of our city. “

The pandemic could permanently shut down up to a third of New York’s 230,000 businesses, according to the Partnership for New York City, a group of companies.

Bankruptcy filings in the region have skyrocketed since mid-March, when New York State reported its first deaths from Covid-19 and Governor Andrew Cuomo shut down all non-essential businesses. There were 610 filings in the Southern Districts (NYSE 🙂 and Eastern New York City from March 16 to September 27, according to court records. That’s a 40% jump from the same period in 2019 and the highest by far for a year since the financial crisis. The districts include some neighboring counties.

Nearly 6,000 businesses in New York City closed from March 1 to September 11, according to Bark (NYSE :), the user review site. More than 4,000 of them have closed permanently.

The carnage has been demoralizing after decades the city has stood on the brink of bankruptcy, the scourges of crack and violent crime, terrorist attacks and the recession. The pandemic struck as the city hit a record high level of employment and low crime.

Prosperity was expressed in bustling department stores from Bergdorf’s to Macy’s. Neighborhoods thrived with craft and clothing stores, mom and pop stores, and cafes that gave New Yorkers a place to feel at home outside of their tiny apartments.

The country’s business capital has always rebounded from past crises, but the advent of working from home in an economy increasingly dependent on white collar jobs can be an insurmountable challenge.

Distress is on display on Madison Avenue, once a global destination teeming with glamorous shoppers. From 60th Street to 70th Street today, about 60 of the 130 storefronts are closed and locked.

Padlocked doors and windows covered with butcher’s paper or plywood line a quiet boulevard. Even inside luxury retailers that remain open, like Dolce & Gabbana and Prada (OTC :), a handful of well-groomed salespeople and broad-shouldered security guards stand expectantly on empty sales areas. of clients.

The owner of Jimmy’s Steak and Grill, a food cart on the corner of Madison and 60th, said that with nearby office buildings empty, sales of hot dogs and platters of lamb on rice are down. 60%.

“Right now I’m supposed to have a line,” Jimmy Gonzalez said through a black mask, pointing sadly at the empty sidewalk. More than half of the cart owners he knows have given up. “They sell the cart, they sell the license, they sell everything.”

Small businesses like Gonzalez are showing what is at stake when large employers move workers away from office towers. Manhattan businesses that use the Square digital payment system (NYSE 🙂 earn just 62% of the revenue they earned before the pandemic, according to the company.

“This is probably the result of a significant drop in the number of commuters arriving in the district,” according to Square economist Felipe Chacon.

By the end of September, only 15% of the city’s 1.2 million office workers had returned, according to the New York City Partnership.

“Retail and real estate will continue to decline in New York until you can get office traffic back up,” said Joseph Malfitano, who advised Brooks Brothers and Ann Taylor’s parent company in their bankruptcy. this year.

Many New York City business owners who give up don’t even bother to file for bankruptcy, which can cost as much as $ 25,000, according to Leslie Berkoff, a longtime bankruptcy lawyer. The owners simply lock the doors and walk away.

“What is bankruptcy for? No one is going to sue you right now, ”Berkoff said. “A lot of your suppliers probably won’t survive either.”

That’s what cheesemaker Patrick Watson, owner of Stinky Bklyn in the Cobble Hill neighborhood, did when his landlord refused to renegotiate his rent. Watson quickly sold his inventory of imported Brie and Humboldt Fog and donated the remaining staples – cans of tuna, crackers and condiments – to a homeless shelter.

“We tried. We really, really tried,” Watson wrote on Facebook (NASDAQ 🙂 in April. “For the safety of our crew and with no immediate end in sight, Sunday will be our last day.”

A dozen neighboring businesses have also closed, including a restaurant, bar and barber shop, said Randy Peers, president of the Brooklyn Chamber of Commerce.

Sales remain strong at Watson’s other business, a wine store called Smith & Vine, which may indicate increased stress levels in the city.

In an effort to help restaurants, the city has closed dozens of streets on weekends so they can occupy that space, and it will continue the program into the winter, allowing propane heat lamps and shaped enclosures. tent.

“Once you get below 60 degrees it starts to get risky,” said Vin McCann, a restaurant consultant. “I bet you between 25 and 50% of New York restaurants will not come back.”

Rent relief could be possible if the state allowed localities to forgive landlords for property tax payments in exchange for a reduction in the rent owed to them, said City Councilor Mark Gjonaj, who heads the committee. small business consulting.

“It would help save struggling mom-and-pop stores while preventing owner’s properties from falling into distress,” he said.

The city’s Department of Small Business Services has received about 35,000 calls for help since June and has made about 4,000 grants and loans under an $ 80 million program approved at the start of the pandemic.

“A third of our small businesses could be shut down if we don’t have a strong recovery,” said Jonnel Doris, the ministry’s commissioner. “The fate of small businesses will determine the fate of the city.”

© 2020 Bloomberg L.P.

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