Tipping Point

High rents, too much competition: Is downtown Sacramento’s restaurant scene in trouble?

This story is part of Tipping Point, our new project focused on telling the stories of the Sacramento region’s evolution. Read more of our Tipping Point stories here.

Three years after Paul McCartney opened Golden 1 Center with “A Hard Day’s Night,” downtown Sacramento has finally broken through as a food and entertainment destination.

Restaurants staffed by some of Northern California’s finest chefs line the streets, parks and sidewalks surrounding the arena and the state Capitol. The daily 5 p.m. exodus out of downtown by thousands of state workers and young professionals doesn’t happen at the same scale. New and interesting spots seem to open monthly, and the choices reflect Sacramento’s diversity: a ramen bar, a Cajun fry shack, a London-inspired brasserie.

But there are signs of trouble on the horizon.

Downtown Sacramento has become an increasingly competitive space for restaurants. Housing construction in the urban core is increasing, but not quickly enough to support the new entertainment options, raising concerns that supply will outpace demand.

And like so many other places in the region, downtown is becoming exponentially more expensive. Rents are on the rise, and locally-owned restaurants or those not backed by corporate chains may begin to struggle to pay the bills.

Even the man widely credited with launching the grid’s restaurant renaissance says he wouldn’t open a new business down there today. Asked if the downtown scene faces a supply-and-demand imbalance, Randy Paragary replied, “No doubt. Yeah, there is. And I could see it coming.”

As the region this weekend celebrates its place at the center of the Farm-to-Fork movement, there are questions about whether the vitality in the city’s core is sustainable.

Restaurants became increasingly attractive investments as brick-and-mortar stores became less viable in other retail sectors over the last decade, said Colliers International executive vice president Dave Herrera, who’s spent the last 14 years brokering deals in midtown and downtown Sacramento. Now there might be too much of a good thing.

“They kind of are cannibalizing each other, in a sense,” Herrera said.

Restaurant closings

Esquire Grill was virtually alone when Paragary Restaurant Group opened it at 1213 K St. in 1999, and with good reason: no one really stayed or came downtown past 5 p.m. in those days, he said. With two new hotels nearby and a handful of other restaurants, though, Paragary, his wife Stacy and their business partner/executive chef Kurt Spataro thought the time was ripe.

The expansive white-tablecloth restaurant thrived over 20 years, becoming a favorite of former Gov. Arnold Schwarzenegger and several legislators and lobbyists. But with unprecedented competition and the nearby Sacramento Convention Center closed for reconstruction until winter 2020, Paragary Restaurant Group declined this year to renew its lease for Esquire Grill, two years after doing the same for nearby Hock Farm Craft & Provisions and three years after selling Cafe Bernardo/K Bar at 10th and K streets.

“We really pioneered that neighborhood (around Esquire Grill), and today that section is a thriving downtown location,” Paragary said. “We could have re-upped, but at the time of those leases expiring, Kurt, Stacy and I didn’t think it was worthwhile to continue those locations.“

Newcomers such as El Rey, brü co, The Grid and The Diplomat faced challenges as well, and all four have closed in recent months. Of those, El Rey had the longest run at 2 1/2 years. The Grid made it five months; brü co lasted nine.

Perhaps no surviving restaurant illustrates the pressure on downtown Sacramento businesses better than Tiger, the two-story restaurant and bar that opened wheeling around dim sum-style carts carrying creative New American bites at 722 K St. After six years of planning and eight months of business, Tiger recently switched out its entire management team, restructured the menu to center around tacos and now uses the carts for shots and tableside guacamole prep.

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Why we reported this story

Sacramento is the self-branded Farm-to-Fork capital of America. The region’s restaurant scene has enjoyed a renaissance – especially downtown.

But rising rents, increase competition and a lack of nearby housing could spell trouble for the central city’s food scene.

Tiger needed to create its own draw for when the Sacramento Kings aren’t playing at Golden 1 Center a block away, and that meant being more than a restaurant, said co-owner Sonny Mayugba. Sunday NFL games are now projected on a concrete wall spanning both stories, and a “night market” will feature rotating art installations and other entertainment.

“The only way to thrive here is to be really good at what you do, and attract people when there (aren’t) game nights. Because there’s only 40-something (Kings) games — and God willing, there’ll be more with playoffs — but even then it’s only 50 or so,” Mayugba said. “There’s only so many concerts, and you can’t live by concerts because you’ll die by concerts. It’s got to be good enough that you say, ‘That place is awesome, I want to go there.’ And that’s what we we’re missing.”

Tiger may be on the right track. Downtown Sacramento Partnership business development senior manager Valerie Mamone echoed Mayugba, saying area restaurants would do well to supplement their food and drinks with unique entertainment. Soon-to-open Downtown Commons miniature golf course Flatstick Pub, for example, will serve pub food, pizza and tacos in addition to its full bar with 43 taps.

Downtown foot traffic rises 12 percent on event days such as those with Kings games or concerts, according to Downtown Sacramento Partnership data. And being new isn’t enough to stand out anymore: 96 businesses have opened in downtown’s 66 blocks since McCartney’s concert, including 40 last year alone. There are 160 restaurants in that space, plus 30 food stands inside Golden 1 Center.

That level of competition eliminates some restaurants but also pushes chefs to elevate their cooking and the front-of-house to facilitate a better dining experience, Herrera said. Sacramento’s reputation as a rising culinary destination and the new possibility of Michelin honors don’t hurt, either.

“It’s causing the restaurants to have to step up their game and offer something different and unique to capture that demographic,” Herrera said. “You can’t just throw some meal together and put stuff on the table. It has to be something with substance and creativity and something really culinary. We’re seeing that with restaurants now; everyone’s stepping up their game because of competition.”

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Tiger opened wheeling around dim sum-style carts carrying creative New American bites. It recently switched out its management team, restructured the menu to center around tacos and now uses the carts for shots and tableside guacamole prep. Paul Kitagaki Jr. pkitagaki@sacbee.com

Sacramento neighborhoods gone

Prior to the 1960s, much of downtown Sacramento was filled with ethnic sub-neighborhoods — Chinatown, Japantown, an African American area — and political watering holes such as Frank Fat’s and Posey’s Cottage. Though the former areas were culturally rich, middle-class families and business owners considered everything west of 13th Street leading down to skid row (now known as Old Sacramento) a dead zone, “Lost Restaurants of Sacramento and their Recipes” co-author Maryellen Burns said in an interview with The Bee.

The Capitol Mall expansion of the 1950s drove an estimated 10,000 people and their restaurants out of downtown, and the dead zone remained stagnant until the 1970s, Burns said. Even in the area east of the Capitol then considered downtown and now known as midtown, desirable restaurants were few and far between. Office workers’ lunches often consisted of tamales or tacos, whatever the women selling door-to-door were offering that day, Burns said.

It was Paragary’s first restaurant, Parapow Palace & Saloon, that kicked off the initial grid explosion back in 1969, Burns said. Paul D’Alessandro and Jackson Leong followed with Americo’s at 20th Street and Capitol Avenue in 1977, then Paragary’s Bar & Oven opened in 1983 and Biba three years later.

The restaurant boom slowly spread from upper midtown to downtown in the 1990s and 2000s with the additions of places like The Waterboy and Lucca, Burns said. Even as high-end restaurants such as Ella Dining Room & Bar and Grange emerged, however, the downtown areas surrounding them have remained crime and homelessness hotbeds.

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High-end restaurants such as Grange spread from midtown to downtown in the 1990s and 2000s, and thrived despite blighted blocks nearby. Paul Kitagaki Jr. pkitagaki@sacbee.com

Mayugba thinks those problems are being solved, and allocated his money accordingly. A Sacramento native and former Esquire Grill pantry chef, his Golden Group has invested money into Tiger as well as neighboring Solomon’s Deli, plus Red Rabbit Kitchen & Bar up at 28th and J streets.

“It’s no secret that K Street was a little bit of an abomination for a while,” Mayugba said. “It’s getting cleaned up and people feel like, ‘Oh, I can go down there.’ You have a lot of people who are pretty mainstream, and back in the day it was pretty scary down there. Now they can walk down and say, ‘I feel good.’”

Rents, meal prices on the rise

That relative comfort has come at a cost to surrounding businesses. Retail rents are negotiable, but $3 to $4 per square foot rates are common for a triple-net lease in a desirable downtown space these days, said Sacramento-based Colliers International research manager Bob Shanahan. For comparison, TRI Commercial reported the average citywide asking rate for a triple-net retail lease was $1.44 per square foot in the second quarter of 2018.

High rent inherently forces restaurants to charge their customers more, a trade-off that can be hard to swallow if the quality and ambiance isn’t exceptional. Though Burns goes out to eat at least once a day and tries to eat somewhere new every week, she still doesn’t normally venture west of 16th Street in Sacramento, she said.

“With all that competition downtown, I still don’t get down there,” she said. “They’ve kind of overpriced me. To me, they kind of seem (like) special occasion places.”

High costs of doing business also put a disproportionate pinch on small retailers, Herrera said. Restaurants with corporate support such as Yard House or the incoming Taco Bell Cantina can often absorb a down year or two; mom-and-pops with thin margins, less so.

Rent will likely continue to rise as the downtown housing market surges to catch up with expanding retail, though many new projects are mixed-use buildings with ground-floor dining options of their own. Five buildings planned or under construction downtown will account for more than 900 apartments or condominiums, including 436 units at Sacramento Commons a few blocks southwest of the Capitol.

There’s also roughly 440 hotel rooms, apartments and dorm-like housing units planned at 10th and K streets and the 11-story, 172-room Hyatt Centric Hotel going in at the corner of Seventh and L streets, the latter of which will have its own restaurant headed by former Selland Family Restaurants executive chef Ravin Patel.

“We’re a downtown, and I think it’s natural for there to be an increase in activity,” the Downtown Sacramento Partnership’s Mamone said. “People want to come downtown. It’s the epicenter of the city, and it’s natural for talented business owners to want to be in the same area.”

Having residents nearby isn’t nearly as essential to downtown’s success as it would have been in the past, Mamone said. The addition of Jump Bikes, scooters and ride-sharing services such as Uber and Lyft allows people who live miles away to get downtown with relative ease and no parking worries.

But most restaurants on the grid aren’t as family-friendly as suburban competitors, Herrera said, where restaurateurs might have room for a kids area. The same “cool” factors that make a place a desirable nightlife destination can also box out Sacramento’s sizable suburban population.

Downtown restaurants that can’t offer truly exceptional food or additional entertainment might need to lean into the nationwide grab-and-go trend, Mamone said. Less seating means less square footage, which means lower rent, which in turn can help keep prices down.

“We’ll see smaller concepts, not so many dine-in places where you stay for a long time,” Mamone said. “There’s room for Ellas in every district, but I think we’ll see more grab-and-go, more players that can also deliver food to residents. And the ones that continue to stay relevant with the changing market will do well.”

That wouldn’t work for Paragary Restaurant Group, which has only opened sit-down restaurants and bars to date. But don’t fault Golden 1 Center for changing the scope of what restaurants open downtown, Randy Paragary said.

“I think the arena is the best thing that’s happened to downtown in the history of my life,” said the 72-year-old Paragary. “We might have this issue of oversupplied restaurants, but what was the alternative — to have this decaying part of downtown that nobody wanted to go to? And now it still needs some improvement with more residential housing, but wow, without that it would really be a horrible part of Sacramento.”

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Benjy Egel covers local restaurants and bars for The Sacramento Bee as well as general breaking news and investigative projects. A Sacramento native, he previously covered business for the Amarillo Globe-News in Texas.
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