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High Rents, Low Labor Force Some Denver Businesses to Close

Despite surviving several COVID-related challenges, some businesses are closing due to monthly rent increases, landlord disputes and hiring difficulties. Only about 65 percent of small businesses are currently profitable.

A woman stands in an empty restaurant
Erin Markham, owner of the restaurant The Saucy Noodle, stands for a portrait during the Denver restaurant's "moving sale" Wednesday, Aug. 17, 2022. The restaurant — a mainstay of Denver dining for 58 years — closed Sunday, Aug. 14, 2022, after the building it was in was sold to a new owner the previous month.
(Photo by Jintak Han/The Denver Post)
(TNS) — A spate of Denver-area businesses that survived the COVID-19 pandemic are shuttering their doors for good this year — and often not by choice.

After two years of coronavirus-related difficulties, these businesses are now facing the painful decision to close because of hefty monthly rent increases or disputes with landlords (which, not surprisingly, are sometimes caused by the rent hikes).

Coupled with the ongoing difficulty in hiring and keeping good employees, the tenuous standing the businesses have as tenants has proven too burdensome to continue operations.

The closures run the gamut of business types.

An antiques store in Golden closed because its rent quadrupled. An Italian restaurant in Cherry Creek North closed after its new landlord abruptly ordered it to vacate a building where it had operated for 27 years. A popular coffee shop on Tennyson Street closed because its corporate owners wanted to make operational changes.

Three businesses closed, and three customer bases left scratching their heads.

It seems counterintuitive that a prosperous operation with a loyal clientele and a proven track record of growth would be forced out of business, but that demonstrates the incredible pressure Colorado’s rising real estate market is putting on entrepreneurs.

Warehouse and retail space came into huge demand almost a decade ago. As the value of a commercial building increases, so does the rent that a landlord can charge. As the leases for these businesses come up for renewal, the new monthly rents spike so much that an already thin profit margin disappears, causing business owners to decide that closing is their only option.

The Saucy Noodle, an iconic Italian joint at 727 S. University Blvd. in Denver’s Bonnie Brae neighborhood, closed its doors for good on Aug. 14 after almost six decades. “It’s kind of like the whole seven stages of grief,” said co-owner Erin Markham in a telephone interview, describing herself as angry, hurt and scared.

The restaurant was once a family affair, as Markham and her husband Nathan acquired it from her grandfather Sam Badis’ estate in 1998. However, it suddenly came to an end this summer when the restaurant’s current building sold in July and a new landlord, Otto Petty, took over.

Markham said he asked The Saucy Noodle to downsize to a smaller space at a higher rate. “We can barely pay what we’re paying now,” which is a decrease from the original rent, she added. “Landlords don’t understand that this particular industry has not recovered.”

Petty’s company, Endurance Real Estate Partners, didn’t respond to multiple requests for comment.

In an open letter to customers on The Saucy Noodle’s website, the Markhams wrote, “Unfortunately, we have been unexpectedly evicted by our landlord, and have no choice but to make this difficult decision.” The restaurant, which operated on a month-to-month lease, employed about 25 staffers.

“Leaving the space was not unexpected,” Markham said. She and her spouse first began looking for a new location about five to six years ago “because Bonnie Brae has changed so much,” noting a shift in their customer base and less traffic on the block.

However, she said the changes are “for worse,” as she’s seen fewer pedestrians and the closures of other neighborhood institutions, including Bonnie Brae Tavern.

In the end, the hunt for a new location in the Denver area came to naught, as “we can’t afford what landlords are asking,” Markham said. In her restaurant’s last three weeks, the space was crowded with patrons eager to show their support.

“We sold out of food every day,” Markham said.

Now, they need to be out by Aug. 31, and are in the process of moving. As for what’s next, the Markhams will take a break before regrouping – and possibly starting over outside of the Mile High City.

“We’ll rise from it, and we’ll find some place,” she said. “I just can’t promise it’ll be here.”

Ace Hardware at 417 S. Broadway is on track to close next month after 17 years, BusinessDen first reported. Store owner Andy Carlson said the owners of the property, Broadway Marketplace, have been redeveloping it over the years, with property taxes jumping in turn.

The landlord worked with him to handle the increased costs, but, “in return for helping us out, they wanted us to leave earlier than we originally hoped we could stay,” Carlson said.

The cost of wages and criminal activity, including five break-ins since 2019 and a rise in shoplifting, also influenced the decision to close.

He and his wife looked to move into a new space for about two years, but “there just isn’t anything viable.” Carlson described his store’s performance as “very successful,” with around $3 million in sales annually and hundreds of loyal patrons.

“It’s a bummer because it’s certainly a needed resource in the neighborhood,” he added.

His store’s current space will eventually become apartments, and Carlson will move on to become the CEO of a small IT company.

Kayvan Khalatbari, co-owner of Sexy Pizza, also had his hands tied when it came to closing his chain’s original location at 1018 E. 11th Ave. in Capitol Hill, which first opened in 2008. Now, his business includes four Denver restaurants and a fifth in Trinidad, with around 100 employees.

Public records show that Ogden Investment Company owns the building in Capitol Hill, which houses multiple businesses, including a nail salon and 7-Eleven convenience store. Managing Partner Katherine Diane MacRossie served as Sexy Pizza’s landlord, and disputes between them piled up over the years, Khalatbari said.

However, the breaking point was Ogden’s decision in March to install rocks between the street and sidewalk “to prevent people from camping there,” Khalatbari said. It also created other problems for Sexy Pizza, as it prevented delivery drivers from parking and blocked a bike rack.

“It was doing a disservice to our business on a couple fronts,” Khalatbari said in a telephone interview. After reaching out to his landlord to ask about the rocks, “she never really responded to it.”

MacRossie didn’t respond to multiple requests for comment.

At the time, the Sexy Pizza team hoped to renew their five-year lease in Capitol Hill, as the first two renewals occurred without a hitch. But, about 75 days before their current lease’s expiration, they received a notice to vacate by July 31, Khalatbari said.

“We offered double, triple rent from what we were paying,” he said. “We offered to pay anything that she wanted to stay in that location because we’ve been there for so long.”

He said she declined, prompting the Sexy Pizza team’s “mad dash” to find a new space. After shutting down for about a week and a half, they’ve since been operating temporarily out of CloudKitchens at 810 Vallejo St. in Lincoln Park, keeping most Capitol Hill employees in the process.

“Our sales right now are anywhere between 25-40 percent of what they were at our Capitol Hill location so far,” Khalatbari said in early August. “We really, really, really wanted to stay in Capitol Hill, but there were no locations available.”

He worries about Denver’s trajectory, as the city’s “just not the same that it was 20 years ago when I moved there. A lot of that has to do with a lot of the selfishness and the greed associated with the real estate market.”

Lani Langton, a Denver-based business adviser, has noticed a jump in business closures over the past six months, hitting not just restaurants but construction companies and the marijuana industry as well. She attributes the trend to myriad factors, including labor scarcity, owner retirements and the “Great Resignation,” during which employees voluntarily left their jobs.

Langton notes that baby boomers, which make up over 45 percent of small business owners in the U.S., “have been through three recessions and COVID, and they’re like, ‘We’re done. Just get rid of this business.’ ”

Only about 65 percent of small businesses are currently profitable this year, according to a report by Guidant Financial. Over 70 percent of survey respondents described employee recruitment as somewhat or very difficult, and almost 47 percent pointed to a low number of applicants.

However, it’s not all gray skies for businesses. Colorado ranks as the best state in the country for women entrepreneurs and sits in the top five for business overall, according to this year’s State of Downtown Denver report by the Downtown Denver Partnership. The Mile High City is recognized as the sixth-best large city to start a business.

Denver’s population is also getting a boost, as former residents of Chicago, San Francisco, Washington, D.C., New York City and Boston are choosing to pack up and move to Colorado’s capital instead, the report detailed.

“Business is a force for good in our community,” said Debbie Brown, president of Colorado Business Roundtable. “When we have a thriving business community, at the end of the day, it helps people.”

Her organization represents large private-sector, government, academic and community employers, including national and global businesses: Deloitte, the Boeing Company, Amazon and AT&T Inc. among them. She said within this specific business community there’s a trend of downsizing but not shuttering completely.

Instead, the top problem they’re encountering is retaining and training staff – a labor issue that existed before the pandemic but has since been exacerbated.

“My belief is disruption brings opportunity,” Brown said. “The smart businesses aren’t gonna go back to normal – they’re going to continue to innovate.”

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