Luka’s Taproom & Lounge
2221 Broadway (at Grand Avenue), Oakland
Updated at 2:30 p.m. with comment from Luka’s landlord.
Luka’s, the 18-year-old restaurant and taproom often credited with leading the revitalization of Oakland’s Uptown area, will close at the end of January. According to co-owner Rick Mitchell, the closure comes after a years-long struggle, which reached an impasse this week with their landlord, who was seeking a significant increase to the rent.
Luka’s opened in 2004 with a wide-ranging menu including a well-loved burger popular with the lunch and dinner crowd, a comforting Southern leaning brunch (think biscuit Benedicts), and an after-work scene that, pre-pandemic, was packed every night of the week. The bar and restaurant brought crowds to a neighborhood that for decades had struggled with empty storefronts and high rates of crime, leading a charge that’s since made the area one of the East Bay’s biggest dining destinations.
Celebrity restaurateur and chef Tanya Holland, whose Brown Sugar Kitchen flagship location is just up the street, told Nosh that “Rick and I were pioneers in the area,” listing off the multitudes of restaurants and bars that opened in the neighborhood after Luka’s proved the district could draw diners in. “But pioneers rarely get to reap the benefits.”
That seems especially true for Luka’s. According to Mitchell, a former tax attorney who co-owns the restaurant with his wife, Maria Alderete, a condition of the restaurant’s lease was a “right of first refusal,” a clause in an agreement that means he’d be first in line to buy the building were it to go on the market. But when the structure was sold some three years ago, that agreement wasn’t honored the way it should have been.
Instead, HP Investors, a large-scale property investment company that owns buildings nationwide, purchased Luka’s building. “It was impossible to get them to make any sort of investments in the building,” Mitchell told Nosh, citing struggles to maintain the structure. He says the company told him the only way they’d be able to recoup their investment would be to raze the building and construct a hotel on the lot, instead.
Isaac Abid, an Oakland-based partner at HP investors involved in the lease negotiations, told Nosh that Mitchell’s previous lease didn’t require investments from the landlord, but his company had offered capital improvements as part of a new lease for Luka’s. In addition, he said that while the potential to redevelop the site came up during lease negotiations, the hotel idea was just one possibility for the lot, not a firm plan. “I live in Oakland and got to a lot of these restaurants in the buildings we own,” he said. “I went to Luka’s, and I’m personally sad we couldn’t come to an agreement.”
Though the relationship with its landlord was difficult, Mitchell says that Luka’s continued to flourish, especially with folks who work and went out downtown. A lot of that business dropped off when the pandemic prompted business closures in early 2020, and “Business dropped by 30-50%,” Mitchell said. Still, “we’ve been paying rent this whole time,” unlike many other commercial tenants in the Bay Area and beyond. According to one of Luka’s patrons who spoke with Nosh, “so many people love Luka’s and ordered takeout during the shutdown last year.” An expansive outdoor dining area, often bolstered by pop-ups from well-followed local chefs, also helped keep the restaurant busy.
The rent for Luka’s space is up at the end of January, and Mitchell says that his landlords wanted to double its rent. “We pay $2 per square foot now,” Mitchell said. “They wanted to double it to $4, plus participation.” According to Abid, HP’s final offer was $20,000 per month in rent for the restaurant, an additional $3,000 for the parking lot and 6% participation.
(“Participation” might be a concept unfamiliar to most readers, so here’s a simplified explanation: essentially, it’s a revenue-sharing plan, in which a business promises to offer its landlord a certain percent of the gross sales over a restaurant’s “break even point” as part of the rental agreement. It can be a gamble for a landlord; if profits are low, they don’t see a dime. It can also be a huge win if their tenant is more profitable than expected.)
According to Abid, the restaurant’s base rent had been set in 2004, and the new terms reflect the current market value of the area. In fact, Abid said, “Our canvassing of the market was that we could achieve a number of excess of that.” When it comes to participation, Abid said that “Given how well-established and successful Luka’s is, that’s something I would have been more comfortable with with them than with a new-to-market restaurant,” but said that “we’re in the business of letting places make as much as they can,” which means setting a market-rate rent for tenants in buildings they buy, as opposed to less conventional rent structures.
“Even without participation,” Mitchell said, the doubling of the per-square-foot rent wasn’t something that Luka’s could manage during these pandemic-depressed times. “We have a healthy business and would have continued it, even at these higher rates” were it not for the current revenue drop as the coronavirus crisis continues.
“Rick engaged with us for months and months over the new lease,” Abid said, “and he was always straightforward about what he could afford and what would work for his business.” According to Abid, he’d hoped that they could find “a way to keep Luka’s in the space, but we reached an impasse … but I really do wish Rick and Maria the absolute best.”
According to Holland, Luka’s isn’t the only restaurant likely to close over pandemic-era rent increases. “We need change at the state or federal level to cap some of these rent hikes,” she said, noting that residential tenants have protections that businesses — which often pour hundreds of thousands of capital improvements into buildings they have no ownership in — lack. “Otherwise, all our restaurants will close, because this business is still suffering. We’ll lose the flavor of our city.”
“The thing that makes me mad is that we’re in a really good place,” Mitchell said, with business steadily improving by the day. “We have some sadness and some anger, but we know we have a lot of beautiful things, too.” He and Alderete are taking that positivity into their other project, Community Kitchens, which since March 2019 has worked to “ensure that everyone in Oakland has access to at least one hot, nutritious meal every day.” That includes Dining for Justice, an initiative that launches on Jan. 10 in which a group of over 20 Oakland restaurants will add a 1% surcharge to every meal, “100% of which goes toward providing community meals,” Mitchell said.
Mitchell doesn’t have a final day in business for Luka’s, but confirms that it will have to go to dark as of the end of January, “so you should get in here, now, while you can.” And already, Mitchell and Alderete have started plotting a new location for Luka’s, somewhere else in the city. “It won’t be right away, but after we shake off all this COVID trauma you’ll see us again,” Mitchell said. “We’re never leaving Oakland.”