Too small to fail.

So what is the cost of a one year social gathering space rent subsidy?  We could not find comprehensive data on the total annual rent paid by liquor licensed premises in NYC.  However, the New York City Office of Nightlife conducted a geographic information system analysis and yielded a range of $3.6 billion to $5.5 billion, with an average of $4.6 billion, in total annual rent for these establishments.  With nearly 12,000 licensed premises in the city, this figure amounts to an average of about $32,000 per month, per establishment.

Now $5 billion for a rent and/or mortgage bailout may seem like a tremendous figure, but this is  less than 1% of the total $660 billion in Federal funds allocated to the PPP  (so far).  


And it is less than 20% of the ~$30,000,000,000 (that’s $30 billion)  in fees banks are receiving for administering the PPP.  Think about it:  banks are getting 5% of the total pot for administration, which invariably is a huge windfall.  As the most impacted industry in the most impacted city in the world, we are seeking less than 1% to merely pay rent to preserve our spaces so we can survive.   Treasury Secretary Mnuchin even encouraged banks to grab their "free" money at the April 2 White House Coronavirus Task Force Briefing.  "I can assure you, at 5-points, I’ve told these bankers they should take all their traders and put them in the branches.  There will never be another opportunity to earn 5-points on a 90-day government, fully government guaranteed, loan.” (see 10:55 to 11:15 mark of this video.)

Using the $7.4 billion salary figure from the Office of Nightlife's industry economic impact report, we can calculate that at least $1.5 billion in PPP funds are already available for NYC hospitality businesses.  (This figure is likely higher if we add tips and owner compensation.) And we can probably reduce the $5 billion even further, since a certain percentage of businesses will be able to support physical distancing (i.e., table service restaurants) and will not need aid for a full year.  Therefore, it is fair to conclude that if existing PPP funds can be redirected solely towards rent, only an additional $3.5 billion on the extreme high end is required.

So is this $3.5billion investment worth it?  In pure economic terms, this investment will yield enormous return.   Here are the top line figures of total direct, ancillary, induced, and indirect impact impact of NYC's Nightlife Economy:


source: NYC Nightlife Economic Impact Study

We can't get back the losses that we sustained during this pandemic, but we should ensure that we minimize future harm.  The ~$3.5 billion in funds required to provide 12 months of rent subsidy for the entire nightlife industry is only 10% of the total economic impact.  Therefore, the investment return essentially doubles for each additional 10% of the industry that is preserved---in the first year alone.  For example, let's say that we are presently on course to lose 40% of our nightlife businesses, which translates to a $14 billion economic loss.  If we reduce the percentage of closed businesses to 20%, we will cut the total economic loss in half to $7 billion, which is double the $3.5 billion in rent subsidies.  But this is only in year one.  If we project a 3 year recovery period for that 20% in additional failed businesses, we would see an economic loss of $21 billion, or 6 times the $3.5 billion investment.  Over 5 years this amounts to $35 billion or 10 times the $3.5 billion subsidy.

And then there is the impact on the real estate market.  Not only does the $3.5 billion subsidy preserve our social gathering spaces, it also helps prevent a potential multi billion dollar mortgage default (amplified year over year) and bolsters present property values, which in turn solidifies the city's commercial real estate tax base.  Let's not fool ourselves with the notion that vacant social gathering spaces can be easily replaced with a new tenant from another industry.   That's not going to happen in a market that is reeling from this pandemic, which has dealt a final blow to many storefront retail sectors. The best way forward for the real estate market and property owners is to preserve social gathering tenants.

We are going to pay one way or another.  We can either bite the bullet with a $3.5billion rent subsidy for social gathering spaces or we can suffer over the next 5 to 10 years with the loss of hundreds of thousands of jobs, billions in lost city revenue, tens of billions in mortgage default, and hundreds of billions in lost property value.  We are presently on course for the later.  So let's get to work