The Roosevelt Room Stands Its Ground in a New Downtown
How the right lease negotiations kept the Fifth Street bar in business
Everybody knew it was coming, but no one knew when. As Downtown Austin was growing tall and fancy from Seaholm to Rainey, Fifth and Lavaca stalled. Almost all of the establishments on the corner, including Rebel's Saloon and Hudson on Fifth, had trouble staying in business and closed, one after another. A resident of the nearby Plaza Lofts describes the block as having "pretty much died."
Then came Justin Lavenue and Dennis Gobis, ambitious service-industry guys who were 26 and 30 years old, respectively, and had aimed to eventually own their own bar. Sitting at a horseshoe booth of black leather inside their dimly lit Roosevelt Room, June's sun blaring outside, Lavenue and Gobis tell us about the genesis and trajectory of their business.
We could say they're not your "typical" bartenders, but in Austin, we know that those slinging our drinks have many talents. These two met at the Tales of the Cocktail conference in New Orleans right before Lavenue moved back to Austin from Boulder, where he had graduated as valedictorian of the University of Colorado's business school and fallen in love with bartending. Gobis, who lived in Cleveland until relocating to Austin about nine years ago, was managing North Loop's beloved Drink.Well. After becoming friends, they started a company that developed ergonomic and innovative bar tools and were going through the patent process when they first heard about 307 W. Fifth.
Lavenue and Gobis walked into the building in October 2014. About 10 months had passed since the Soma Lounge was last in operation, and only remnants remained: the impractical honeycomb-back bar, the cheesy beds on the mezzanine level. But the pair saw potential in the bare bones and guts of the space, built circa 1930. "These Warehouse District buildings have so much history," Gobis says. "It's such a cool building. This arched roof, you're never going to get that again with any of the new construction that's going up." It needed work, sure, and they hadn't anticipated owning their own bar so soon, but ultimately it was what they had in mind: a place where they could build a bar with good drinks and even better hospitality.
Though Lavenue and Gobis assumed the landlords likely had an eye on selling, they took the plunge and drained their savings accounts to rent that space and the one next door for a total of 7,500 square feet, with no investors other than Lavenue's dad, joining with a small share. They immediately reopened the existing event venue the Madison, which would later become the Eleanor, and opened the Roosevelt Room a few months later in June 2015. "It was an 'oh shit' moment for sure," Lavenue says. "But we were like, 'We can do it, we're tenacious.' It was 12 to sometimes 18 hours a day and literally not one single day off during that first year. Both of us have personally touched every surface in this space to completely remodel it [over three years]. We always were joking that the second we finished is the day we'd get an offer. And it was almost the following month."
And Then Guess What Happened
The timing couldn't have been worse. The bars were earning good reputations and both men were also gaining acclaim for their mixology skills. Gobis had won an international bartender prize, while Lavenue had won the U.S. Bartenders' Guild's Most Imaginative Bartender challenge, a nod that put him on the cover of GQ's special "Men of the Year" issue in late 2015. Within two weeks of that, their business picked up considerably, and the bar was at least three people deep every weekend night (which led to their current reservation system). All the while, they continued tweaking the spaces to be exactly what they wanted.
Then, in early 2018, Lavenue got a call from a friend informing him that the landlords had put the adjoining parcel on the market and had indicated their openness to including the Roosevelt Room and Eleanor properties in a deal. Developers were already bidding. The one who prevailed was the Hanover Company, a Houston-based apartment developer and construction company whose work in Austin includes the Northshore and Ashton buildings, several blocks south of Fifth and Lavaca. David Ott, who leads the company's development efforts in Texas, says Hanover liked that the location was just a two-minute walk from newly renovated Republic Square, with its transit hub and weekly farmers' market, and was surrounded by new offices. "It's in the center of the city," Ott says, underscoring how quickly changing land use patterns in Austin can transform a once-undesirable plot.
To keep communication open and because the support of neighbors is crucial, Ott says he started discussions with the Roosevelt Room owners as early as possible – he also wanted to see if Lavenue and Gobis were interested in terminating their lease early. "Whenever you're building a building that is going to be there for hundreds of years, if there's something next door to you that's redevelopable, you of course want to have discussions on including that or not," Ott explains. In May 2018, he reached out to Lavenue and Gobis.
Early talks took place inside the bar, at the same booth where I'm speaking with Lavenue and Gobis. By now, the surrounding area was bustling, with the opening of Spin pingpong bar and construction of the upcoming Hotel Zaza. Ott presented Hanover's vision for a 45-story apartment building and tried to gauge the bar owners' interest in various renderings and scenarios, some of which involved them going away, others including them in Hanover's larger concept.
Lavenue and Gobis didn't yet know what they wanted to do. Eventually, they formed their own short and informal list of non-negotiables. The first was that if they accepted an offer from Hanover, they must be able to employ their staff or find temporary jobs for them until the Roosevelt Room could reopen. Because they worked hard to develop a family of employees, most with at least a year's service and some having served nearly as long as the bars had been open, they didn't want to lose anybody. The second must-have was that they would move forward only if it made sense for their overall brand.
You're likely and understandably wondering: How did these young first-time business owners have such bargaining power in a city and neighborhood that is incessantly losing both beloved institutions like Hut's Hamburgers and newer favorites like VOX Table and Bonhomie? Turns out Lavenue and Gobis, knowing the pace of Austin's change, had set themselves up for success before they even opened their doors. "That's why we so heavily invested in our lease," Gobis says, "to make sure we were protected if and when the developers did come. [The landlords] couldn't just sell out and say, 'You have six months left.'"
Building Up That Lease Leverage
Enter Kareem Hajjar, one of Austin's top attorneys for the bar and restaurant industry, whom Lavenue and Gobis hired early on. Hajjar, a native Austinite, graduated from UT School of Law in 2003. Not long into his career, the Great Recession hit; when meeting law school friends for drinks, he learned that many were having trouble finding work. But Hajjar was faring better: He recently had taken on a restaurant client who owned about a dozen other businesses in the city. Ever since, he's been embedded in the bar and restaurant scene.
While Lavenue and Gobis took a systematic approach to their business, Hajjar says many first-time business owners are governed more by emotion and location. "Because they're so excited about it," he says, "they'll sacrifice a lot of really important terms and protections that they may need down the line." He played a huge role in drafting and negotiating the real property lease, a sometimes underestimated document that gave Lavenue and Gobis the "rare" power to stay put amidst change. Hajjar is currently working on at least 12 cases where development is displacing business owners – clients whose leases he wasn't involved with – but his early work with Lavenue and Gobis prevented such a situation. "They have a wonderfully strong lease that balances out a lot of the things that are typically one-sided on the side of the landlord," Hajjar explains. "And they've crushed their concept. We set the table, but clients' businesses have to run."
While many small and first-time business owners might forgo professional help with their leases to save money during a very expensive time, Gobis says they thought it was worth the expense. "We invested pretty heavily on that end of everything with our attorney, to make sure we had the perfect lease to reach profitability," says Gobis. "Because in the first two years in the space, we weren't making that much money."
Hajjar describes Austin as a "city in flux," and this impacts the way he approaches lease negotiations (he's done more than 2,000). He recommends that every bar or restaurant lease feature – or forgo – a few specific clauses. First, he cautions against letting the landlord have broad termination rights, which basically allow property owners to evict tenants before a lease is up just because the owners want to sell or redevelop. Landlords hang on to termination rights in a lot of big-city leases, and we are now seeing it more in Austin, Hajjar says.
If a landlord can't evict the tenants using termination rights, they have two choices. First, they can collect rent for the life of the lease and then simply not renew it. "That's a reality," Hajjar explains. "People get up in arms and go, 'It's an institution, you can't do this.' But really, you can. It's a contract; they have a lease and temporary control of that space. That's the system of law that we have built in our country."
Or developers can go another route, which Hajjar explains as "screwing with tenants to try to nickel-and-dime them into default to get them out by force." Landlords become nitpicky and terminate leases just because the tenant did something minor, like put up a sign without approval. Such moves are legal on a landlord's part unless the lease protects the tenant by allowing for "use flexibility" – alterations to the building such as changing the signage, closing down for a few weeks, reorganizing the business, or changing names, cuisines, or concepts. If you can't secure any use flexibility, Hajjar recommends moving on.
Hajjar, Lavenue, and Gobis were able to negotiate a 15-year lease with no termination rights and with use flexibility, but it wasn't easy. In fact, they didn't have the lease document until five minutes before they were set to sign closing papers. Lavenue says he thinks the landlords were apprehensive because they wanted to eventually sell, but they also didn't want the property to continue to sit vacant. Perhaps the biggest factor was the duo's being OK with walking away. "There were some line-in-the-sand terms of ours," he says, "where the deal was either going to happen, or it wasn't."
In the end, their lease proved pivotal; it allowed them to have a seat at the table in discussions with Hanover and ultimately gave them the final say on their place in the block's redevelopment. "Business owners who are going to lease properties have to realize that there are two documents that govern your entire existence: your lease and your corporate documents," Hajjar says. "And as the operator of that business, you need to be very aware of and comfortable with the risks in [those] documents. Otherwise, you end up in the situation that so many tenants are in, where they are forced to be reactive from a weak position, rather than proactive from a strong position."
Should They Stay or Should They Go?
Even being in a strong position, Lavenue and Gobis wanted to be open to any propositions worth considering from Hanover. They say that after several months of discussions and after deciding that they wanted to remain Downtown, Hanover officially offered them three to four years' profit and a commercial space in the new building. Lavenue and Gobis seriously considered this option, which would have given them the opportunity to build the new space exactly as they wanted, as well as to enjoy modern electrical wiring and plumbing.
But when they saw a draft lease for the new space, the big picture came into focus. The arrangement would have required that they shut down and temporarily relocate – or open a new bar – for two to three years as the Roosevelt Room was demolished and the tower constructed. This, they say, was the biggest risk: "Are we going to be accepted by the public as well as we had been?" What if their staff didn't stick around? They also would have had to put much of their payout back into the new building, as well as take on much higher rent and potentially investors or debt, too. And they had grown to love their current space and how it perfectly fit the bar's concept. "Our building has its own very frustrating idiosyncrasies and quirks that are just part of having an old building," Lavenue says. "But at the same time, it does have that ultimate appeal. There is so much history in the walls."
After about four months of negotiation and deep thinking, it came down to the momentum the Roosevelt Room had been gaining. Shutting down or moving could drastically impact that, and in the end, it was too big a risk for Lavenue and Gobis. "At the time it was all brought to us, the bar was really gaining traction, as far as national and international recognition," Gobis says. "For us, to take something that was very rapidly going uphill and to lay it dormant for three years, potentially – when it comes back, how much traction does it have? We know what we have now; we don't know what we're going to have three years from now."
Though the Hanover folks might have been surprised – by all accounts, Lavenue and Gobis had been very open to their offer – Ott says they respect the decision. Because the project was at a conceptual level of design, the company could easily rework plans. "The deal for us worked without them," he explains. "By including them in the project, it would have potentially allowed the building to be a little bit bigger. But we are happy to move forward with the deal [as] is."
Since the decision, the Roosevelt Room and Hanover have enjoyed a jolly relationship. Lavenue and Gobis say the developer, which is also its own general contractor, has communicated with them about everything happening next door – the tower will butt up right against the exterior wall of the Eleanor – and has reassured them that they will immediately fix anything that might happen to their building. (Neighbors at the Plaza Lofts have equally positive reports.) And both parties are excited to be near each other. "I think it's going to be really great to have an existing cool bar there next to us that has got some real character and reputation," Ott says. "I think people are trying to keep that authentic character of the street scene alive."
Hanover has now demolished the remaining buildings on the block to make way for its tower, which will have 310 rental apartments ranging from 550 to 3,000-plus square feet at rents between $1,900 and more than $12,000 a month. Ott says construction should start by October, once the site development permit comes in from the city.
The Roosevelt Room, meanwhile, still stands, looking a bit lonely next to a big vacant lot and surrounded by the echoes of hammer hitting steel as Downtown's metamorphosis carries on. But on Friday nights, behind the bar's unassuming divey exterior, hip Austinites order gin and whiskey drinks based on historical recipes and fill the room with talk of global politics while tourists laugh and take photos of a rum-blend cocktail from the 1930s, served flaming out of a metal skull. It's clear the business is still very much alive. "If anything," says Gobis, "I hope that this story shows other business owners down the line – with hopefully continued success – that you don't have to sell out and take that quick payday. Keep some of old Austin around."