“There’s gonna be a reckoning, big-time,” chef and owner Matt Dillon told the Seattle Times about his decision to close the still respected, James Beard-worthy Capitol Hill restaurant, Sitka and Spruce at the end of the year.
When a tastemaker and leader says something like that about his industry, people tend to notice. Fans mourn. Fellow restaurateurs take a deeper look at their bottom lines. And the political crowd gets something new to chew on.
CHS reported here on the plan to close Sitka and Spruce at the end of the year after its birth in Eastlake 14 years ago and its move to Melrose Market in 2009.
“Was this about $15 minimum wage? That plays a part in it but it’s such a complicated situation,” Dillon told CHS last week after his words had their chance to circulate and started popping up in arguments over Seattle’s small business and restaurant economy where pundits can’t seem to quit the fight over issues like the $15 minimum wage and the incumbents they blame for ushering it in.
“The $15, you can stomach that,” Dillon said last week. “The minimum wage should be $25. The problem is trying to run a restaurant like Sitka.”
Higher wages and issues over things like tip credit, Dillon says, pale in comparison to another financial term key to any small business owner on Capitol Hill — triple net reconciliation.
Triple net, basically, is how most leases faced by Capitol Hill shop and restaurant owners work. Lessees are responsible for paying rent, of course, and also utilities — and a third category of major expense: real estate taxes, building insurance, and maintenance.
It can be a brutal recipe in Seattle where high demand is a given and it was a key element in Dillon’s decision to shutter Sitka as the restaurant faced a rare but expensive “double” triple net reconciliation situation.
Earlier this year, the iconic Capitol Hill property Melrose Market was sold to Regency Centers, a Florida-based real estate investment trust, for $15.5 million. Many feared the worst for the preservation and locavore focused retail development but tenants CHS spoke with said they had hopes the new owners would provide new energy to the development. Turns out, the biggest worry for many small businesses in this situation isn’t the landlords. Instead, the hefty price tag on the property means a fat tax bill for the tenant share of the increased value.
For Dillon, the first hit was bad enough. But with his first decade in Melrose coming to an end, he was now faced with re-upping on his lease in an even more expensive triple net environment.
“I had to look at myself and my own ego. There’s a lot of things. Sitka had run for 14 years really well,” he said.
Despite his long career, Dillon said he had to look at the situation as if he was starting from scratch.
“How many restaurants are opening, and how expensive it is to be a small business person in Seattle? It didn’t make much sense,” Dillon said.
Raising his prices also wasn’t the answer. “I’m a farmer. I know what it costs… Seattle is growing really fast. I can’t ask customers to pay that price increase on a salad that quickly.”
So now, focused as much on farming on Vashon Island as Seattle restaurants these days, Dillon is preparing to shut down his successful but not quite successful enough Melrose Ave restaurant and prophesying a bit of doom along the way.
It’s a warning cry to high craft, high quality independents in buildings being jostled about by the intertidal forces of massive commercial real estate deals. He sees new ventures making smart decisions like the densely packed By Tae squirreled away inside 11th Ave’s Chophouse Row.
And there is the example of Logan Cox, a graduate of the Sitka kitchen who has now made his own mark with a Seattle “restaurant of the year” at Homer in Beacon Hill. “He followed a lot of people that used to live around Sitka,” Dillon says, apartment dwellers who eventually bought houses on Beacon Hill.
That movement away from the Hill for independent, lower margin food and drink ventures just might the reality of things to come for the neighborhood. Dillon, a Seattle old timer, says history repeats.
“Capitol Hill reminds me a little of Belltown like 18, 20 years ago. “What makes something cool gets exponentially reproduced.”
For now, he remains connected and, as far as he is concerned, Sitka and Spruce’s presence on Capitol Hill will live on.
Upper Bar Ferdinand, which Dillon debuted in Chophouse in 2015, he says is a much simpler scale Sitka and Spruce.
“Sitka is not gone. It’s just not in that location,” he said. “Still alive. Still has energy to give.”
But even at Bar Ferdinand, he admits, every time rent is due, “you think about what’s the right move.”