In November 2019, Bernal Heights seafood eatery Red Hill Station (803 Cortland Ave.) unexpectedly closed its doors.
Since then, neighbors have speculated about the future of the restaurant, which had been a local favorite during its tenure on the Cortland Avenue corridor.
Hoodline spoke with former owner Taylor Pedersen, who shared why he and co-owner Amy Reticker decided to sell the business, the unexpected financial struggles that came from the decision, and what's next for the space.
Red Hill Station first debuted in June 2014, specializing in sustainably sourced seafood like oysters, Dungeness crab, and a rotating selection of seafood pastas. It quickly became popular with neighbors, earning accolades from Zagat and appearing on KQED's Check, Please!
But while business was good, "Red Hill Station was being taxed into oblivion," said Pedersen.
Enacted in 2012, the city's gross receipts tax on businesses with more than $1.17 million in annual revenue makes sense for large tech companies that take home a 60% profit, Pedersen said. But for a restaurant with a profit margin of around 3%, it meant paying taxes on revenue that was mostly then drained by expenses.
Another obstacle was the high cost of Healthy San Francisco, the city's health care program, which restaurateurs are required to pay into for their workers. The program can only be used within the San Francisco city limits, but high housing costs had driven most of Pedersen's employees — students and artists working part-time — to live outside the city.
An alternative, he said, was to provide group health care directly, through an insurer like Kaiser. But after researching his options, he found that most group health care plans were designed to be one-size-fits-all, even though his employees' schedules fluctuated week to week to accommodate classes and art shows.
Pedersen offered to pay a percentage of insurance costs based on an employee's average number of hours worked, but that proposal was rejected by insurers. And even after opting to provide a health care bonus on his employees’ paychecks so they could have private insurance, he was still required to pay taxes for the Healthy San Francisco program.
Rent was the final straw — with two years left on their lease, Pedersen and Reticker knew a rent increase was on the horizon. So they made plans to sell the business.
After entering into and falling out of escrow three times, Pedersen and Reticker were finally able to sell Red Hill Station to new owners, who planned to continue operating it with few changes. However, a visit by the Health Department soon unraveled that plan.
After an inspection, the Health Department called for the new owners to make roughly $40,000 worth of improvements to the space, including installing new hand sinks, a new floor drain, and grease traps.
According to Pedersen, the real estate broker who helped him sell Red Hill Station allowed the new owners to take over without a critical provision he and Reticker had requested — an early occupancy agreement, which outlines who's responsible if anything unexpected happens before the close of the sale.
Without an early occupancy agreement in the contract, "the buyers backed out, unscathed," Pedersen said. "They ran and left us without permits to operate."
Per the terms of escrow, Pedersen and Reticker had already relinquished their permits to operate the business. In the end, Red Hill Station was left with $40,000 worth of liabilities, and no owner.
Pedersen said that his landlord offered to release him and Reticker from their still-effective lease, in exchange for all the fixtures and furniture in the space. They agreed, but significant financial damage had already been done.
"The Health Department is acting too quickly," Pedersen says, making demands on new business owners with tight turnarounds to complete them.
Pedersen has moved out of Bernal Heights and now lives in Mendocino County, where he owns and operates Ukiah Brewing Company with his husband and business partner, Chris Struett.
He notes that the Mendocino County health department required him to make similar improvements to the brewery's facilities when he purchased it. But by comparison, he was given six months to budget, save up, and complete the renovations, instead of being forced to pay for them immediately to avoid delaying a reopening.
Pedersen's former landlord is now set to take the reins of the business under the name Seafood Station, in an effort to uphold the seafood-centric menu that Pedersen introduced.
It's unclear when the new restaurant will open, but a glimpse into the windows shows that work on the new venture is underway — including the $40,000 in kitchen improvements.
“[The landlord] will invest in the property for his own benefit, and I wish him well," said Pedersen. "I'm just glad it won't be another empty storefront.”