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$15 now? Nah. Chef Matt Dillon says try ‘triple net’ when sorting out why he’s closing Capitol Hill’s Sitka and Spruce

(Image: Sitka and Spruce)

“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.”

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neighbor
neighbor
1 year ago

Direct quote from the article: “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.”
I really, really appreciate your willingness to discuss the nuances of owning a restaurant rather than blaming closure on a living wage.
Thank you!

Adam
Adam
1 year ago
Reply to  neighbor

Perhaps something to think about before Seattle’s electorate rubber stamps the next property tax increase that comes up for a vote.

It’s not just those evil, evil homeowners and greedy landlords who get impacted when property taxes go up…

Jules James
1 year ago
Reply to  Adam

As a former shopkeeper and current property manager: Triple-Net is awful! But its the fairest system for 10-15 year leases. NNN makes rent variable and subject to the whims of an electorate that just can’t say “NO” to a tax increase. The solution? As I said: “former”…

Bob Knudson
Bob Knudson
1 year ago
Reply to  neighbor

But Dillon also said: “Was this about $15 minimum wage? That plays a part in it but it’s such a complicated situation,”

So, I think the headline (“15 now? Nah……) is misleading and not really true.

Daria Mae
Daria Mae
1 year ago
Reply to  Bob Knudson

Thanks for addressing this. And while it may only be a “part” of Dillon’s, Dillon is a big name as illustrated in this article about being “Beard-worthy”, etc. There are several businesses (like mine) without the notoriety outside of our neighborhood (yet) where the wage hike IS extremely difficult.

SHOULD people in the service industry be making $25/hr? Of course; we try to treat our crew as best as we possibly can. In fact, with tips, most of them make more money per hour than I do and I definitely put in the most hours of anyone; it’s my job as a fledgling owner. But unless these same consumers who bitch and demand raising minimum wages are willing to pay the high prices on items to compensate for it, it’s unattainable.

Shelee
Shelee
1 year ago
Reply to  Bob Knudson

I agree. Its certainly misleading. Seattle is one of the most expensive Cities to live in the US. Why do property taxes need to keep increasing at these levels? I mean, what do they need the money for?

Heidi Weispfenning
Heidi Weispfenning
1 year ago
Reply to  Bob Knudson

Shelee, I think it has a lot to do with the lack of a state income tax. Because of that, everything gets jammed into sales & property taxes instead.

nettles
nettles
1 year ago

It’s always the rent. When will the people in power get that???

Jim98122x
Jim98122x
1 year ago
Reply to  nettles

Maybe when voters stop rubber-stamping every single property tax levy increase, which impacts the rents? And WA looks for a more equitable way to collect taxes than pegging it all to property taxes?

Phil Mocek
1 year ago
Reply to  Jim98122x

Maybe we should also stop rubber-stamping implied assertions of landlords’ inflated self-worth. Property tax increases decrease the profitability of leasing one’s property. Landlords’ demand for steady profits in the face of increases in the cost of doing the business they choose to do is what hurts small businesses.

It’s all about supply and demand until the powerful feel the effect.

d. hachey
d. hachey
1 year ago

i’ve been a business owner in seattle for 12 years. costs keep going up and up and i feel like a jerk for having to raise prices on my customers every few years to absorb the cost increases related to doing business in this city. and then when my burglar alarm goes off, no police come to check it out.
a reckoning must come. before we know it, it will be all national chains in our city’s leased spaces because they’ll be the only ones who can absorb the costs of doing business here.
it’s really frustrating.
this isn’t the seattle i knew and loved.

iluvcaphill
iluvcaphill
1 year ago
Reply to  d. hachey

Awww, poor baby. The fact is that we customers need to be paying what it actually costs to make the food and pay living wages. None of us are entitled to cheap eats on the backs of people who can’t pay their rent.

And maybe your alarm company is the one you should be complaining to, they are the ones who are supposed to call the police, assuming you paid for that service. And even if the police did come, I assume you’d then just complain about getting a ticket for a false alarm.

I’m personally hoping for a Red Robin to come back to the hill so I can finally get an edible burger!

All Mankind
All Mankind
1 year ago
Reply to  iluvcaphill

^ ignorance is also expensive

d h.
d h.
1 year ago
Reply to  All Mankind

i agree with matt dillon.
my staff deserve a living wage and more and they’re paid above industry standard with solid benefits.
NNN’s are nuts in this city and it’s challenging when you want to offer a good value to customers too. i want to raise prices and my staff are balking. they want to keep costs affordable for customers too.

AND when you pay such high prices and the city’s pd doesn’t come when called because someone crashes your window (spd is overwhelmed with low staff and more serious cases) it can be challenging.

i’m just not able to run the kind of business i started out running in this city.

Shelee
Shelee
1 year ago
Reply to  iluvcaphill

LOL.

reft
1 year ago
Reply to  iluvcaphill

wow, iluv, that was a crappy comment.

dane h sorensen
dane h sorensen
1 year ago

The minimum wage should be $25. Then pay it! Sounds good when you put it on paper….

Edward Everett
Edward Everett
1 year ago

Maybe once we get a NEW City Council; things will get better. There are restaurants on Capitol Hill that have been in business for over 30 years. The food is consistently good. Not an “Oh, I’m here to be seen with the squiggles on the plate and avocado toast .”

Losingmyjob
Losingmyjob
1 year ago

If Dillon thinks we should have made $25 an hour…why was he paying only $11 And pooling tips with his boh?

Jimbilly
Jimbilly
1 year ago
Reply to  Losingmyjob

You really don’t get it. He is saying: the work restaurant employees do is difficult and the pay should be higher. But then there is the people like you, you want higher wages, but then bitch about high prices. You say you support small business, then bitch its more than the cost of target or Cheesecake Factory. You are the problem. Not the small business owner who has decided it doesn’t make sense to operate anymore. You put your money where your mouth is. Pay more and buy small business. Buy local. Don’t go on a faceless forum to bitch. Again, you are the problem. You are yelp, you are comments on a blog. Not a real person with concern. A troll without a face.

Daria Mae
Daria Mae
1 year ago
Reply to  Jimbilly

I love everything you’re saying.

SeattleGeek
SeattleGeek
1 year ago
Reply to  Losingmyjob

He’s only paying $11? Citation needed, as that’s below minimum wage.

Brett Y.
Brett Y.
1 year ago

So is it the transaction that triggers the tax rate hike? Was it fixed for the last 14 years?

iluvcaphill
iluvcaphill
1 year ago
Reply to  Brett Y.

Sort of. Because the building sold for higher than it was currently valued by the county, the county will most definitely adjust it’s value during the next round of appraisals, along with similar buildings around that one. So eventually they will see a bigger property tax bill. This all takes a year or two to flush out. But it’s something you need to be aware of before signing a long term lease.

CD Balooka
CD Balooka
1 year ago

Current business owner here, my NNN is more than my rent.

clew
clew
1 year ago
Reply to  CD Balooka

Whoa! Is that common, or do you have a decent deal on rent, or what?

JD1
JD1
1 year ago

This State really needs a personal income tax – I know that it is not on the Law books, but it should be. Look at all of the people that are making crazy money (including my wife & myself) – the homeless issues could be resolved, police force could be expanded, etc.

iluvcaphill
iluvcaphill
1 year ago
Reply to  JD1

Amen. For as progressive as we think we are we have the most regressive and unfair tax system in the nation. We need a marginal rate income tax and we need to get rid of the sales tax except maybe for luxury items. We should also reduce the property tax drastically and have it marginalized based on value too.

Bob Knudson
Bob Knudson
1 year ago
Reply to  iluvcaphill

You’re dreaming if you think a state income tax will result in reduced or elimination of sales tax or property tax. Politicians rarely reduce any tax.

margaret bartley
margaret bartley
1 year ago
Reply to  JD1

The state income tax will not decrease other taxes, it’s just another revenue stream for our legislators.

coastalcutt
1 year ago

The article misleads readers by suggesting that triple net lease terms are somehow exclusive to Capitol Hill restauranteurs. Triple net is a common condition in just about every commercial lease, anywhere. The larger problem is that restaurants have a notoriously low profit margin – again not just on Capitol Hill but everywhere. The typical restaurant in the US has about a three-year life expectancy. The difference between a 2% and a 3% margin is the difference between surviving 3 years or surviving longer.

Jill Harris
Jill Harris
1 year ago

Matt, how about opening Sitka and Spruce in North Seattle somewhere? Lake City? We need a some good restaurants in this part of town.

Gil Chesterton
Gil Chesterton
1 year ago

As someone who voted for the minimum wage hike, I absolutely expected the prices to go. And because Seattle is becoming wealthier, I expect it to go up any more.

Don’t be shy for raising prices – your customers may just surprise you. It’s better than closing down, isn’t it?

Now if you DO lose customers because the guy down the street is serving a better product for cheaper, while having to pay the same minimum wage and NNN, well, then that one is on you. But if you do a good job, you’ll be just fine.

Margaret Bartley
Margaret Bartley
1 year ago
Reply to  Gil Chesterton

Or your customers might just decide to quit eating out so much.
I have certainly made a conscious decision to cook my own food more often.
It’s taken several years, but I now routinely think of what I’ve got in my refrigertor, rather than where I’m going to stop and eat on my way home.

S L Perry,Jr.
S L Perry,Jr.
1 year ago

This is the price we must all pay for not doing the moral thing and tax income.

John k
John k
1 year ago

Can you share what the NNN costs were?

Jon
Jon
1 year ago

An income tax only gives money to civil servants. We must ask are they worth their keep? The loss of the capital gains tax made real estate more volatile than taxpayers ability to pay.
Greed by developers will kill Seattle, as they take their profits out of the county. Nothing we can do but make popcorn and witness the trainwreck that is Seattle’s future.

Phil Mocek
1 year ago

Wake me up when landlords start selling their property and getting out of the landlord business because it’s too costly to operate here.

Glenn
Glenn
1 year ago
Reply to  Phil Mocek

Wake up Phil.

Jamie
Jamie
1 year ago

Dillon / sitka and spruce

Move your restaurant up north to Edmonds/mountlake terrace. We need great restaurants and the economy is growing and going to be booming. Get up here!!!!

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