The Pitfalls and Possibilities of Rust Belt Restaurant Rehab

By D. J. Costantino | Briana Balducci

By

D. J. Costantino
Briana Balducci

In the throws of the Great Recession, not far from Detroit’s grand and abandoned modern ruin, Michigan Central Station, Dave Kwiatkowski bought a bar in Corktown. The derelict dive would later become The Sugar House. Kwiatkowski lived inside its bare skeleton getting his hands dirty with plumbing, electrical, and construction work. Inspired by Chicago’s Violet Hour and New York’s Milk & Honey and Pouring Ribbons, he described his vision to friends, acquaintances, anybody that would listen, and “nobody knew what the fuck I was talking about,” says Kwiatkowski. That was in 2009. Around a year (and $100,000) later, the craft cocktail bar opened its doors to a neighborhood with next to no foot traffic and few other businesses, in a city that many viewed as teetering on a precipice. It was a turning point for a proud and defiant Detroit and its indefatigable food and beverage professionals.

Chef Marc Djozlija found a similar climate Downtown amongst the few that lived or did business there—a group of about 50 or so people he calls the “hopers and dreamers” for a city that was down and out. A 20-year veteran of the industry, Djozlija opened eight restaurants for Wolfgang Puck before returning to his Detroit hometown to open the MGM Grand.

Djozlija and Kwiatkowski partnered-up and ventured into their first restaurant together, Wright & Co., in Downtown Detroit with nearly $500,000 in capital, only to be told that the cost of build-out would be north of $800,000. There was no infrastructure for a restaurant in the century-old building that once housed a musical instrument shop and had been uninhabited since the 1970s. Out on the streets, the traffic lights didn’t even work. 

Abandoned buildings with low rents are common throughout the Rust Belt and have allowed chefs like Dante Bocuzzi’s to open his namesake spot inside an old bank in Cleveland, and Pittsburgh’s Kate Lasky and Tomasz Skowronksi to launch Apteka in a former staffing agency. However, low rents often come with a hidden price tag. Unexpected costs have plagued Kevin Sousa’s Superior Motors in Braddock, Pennsylvania. For more than three years, Sousa has been rehabbing the country’s first indoor auto lot. After loans, grants, a successful Kickstarter campaign, and an unexpected $300,000 to level the floors, it still lies dormant. 

“Nothing ever costs what you think it does,” says Djozlija.

This is why any chef or entrepreneur seeking to build a business from a seemingly low-cost shell needs to be familiar with the phrase “tenant improvement.” As part of a lease agreement, a tenant may ask for money up front to prepare the space for a restaurant. This may come in the form of free rent or as a dollar amount.

“My two favorite words are ‘tenant allowance,’” says Kwiatkowski. When he and Djozlija were building out Wright & Co., it needed a complete overhaul. He recognizes that while a good monthly rent is important to negotiate, it represents just 5 to 8 percent of the cost of doing business. If food costs run anywhere from 30 to 32 percent, for example, and you add to that the unpredictability of the initial build-out, you began to understand the importance of your tenant allowance. “I’ll take a higher monthly [rent] with a better tenant allowance up front, to free up capital,” says Kwiatkowski.

“If it wasn’t for the T.A., we wouldn’t have had a restaurant in that building,” Djozlija says.

Djozlija and Kwiatkowski’s bankable experience allowed them to negotiate a favorable tenant allowance. They emphasize, though, to always read the lease in full, and have a lawyer look it over. A near miss almost had them paying back what was called a “tenant improvement plan” but was actually a loan to be paid back monthly.

“You have to find landlords that want to do deals, and that want cool things to happen,” said Djzolija.

When a space is finally finished, and opening night is within reach, make sure the restaurant or bar is as complete as possible before the doors swing open. “Even if it may postpone opening, make all of your improvements,” says Kwiatkowski, because closing down can be a pain.” Djozlija adds that if you do have to close, holidays can be advantageous. Looping around a holiday weekend can enable you to shut down and lose minimal sales.

Once you finally open, you have to sell your staff on your vision—of the restaurant and neighborhood. “We tell them that we want them to work for us for 10 years, not 10 months. I’m not hiring any pains in the ass,” says Djozlija. “There’s gonna be one pain in the ass and it’s gonna be me.” Kwiatkowski is emphatic about a well trained staff, whether they’re going to leave in two months or two years, because it raises the standard for the entire neighborhood.

If employees do leave to start something new, it’s important to realize that concentration of restaurants isn’t a bad thing. “I try not to worry about what the guy up the block is doing. We want more places to eat, too” says Djozlija.

Compact Sugar House is mixing nearly 200 cocktails a night, and its popularity has drawn people to Corktown from all parts of the city and suburbs. Building on that customer base and model forged by Kwiatkowski, other businesses have opened, including Katoi just down Michigan Avenue. 

Not only do the traffic lights work at the intersection above which sits Wright & Co., but residents have returned and businesses are flourishing. The mood Djozlija and Kwiatkowski have created within their organization and in the city at large is perhaps best summed up by the name of their now five establishment-strong restaurant group: Detroit Optimist Society. 

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