The Hole Story: What is really happening with the historic bar?

There has been much rumor, speculation and innuendo being spread through social media and the Internet concerning the closing of The Hole on July 5, 2015. Adding fuel to the fire was a letter to the community by the proprietors of the Hole, Steve Rock and his wife Debi Williams, which was shared on Facebook and beyond. The letter made several assertions against the landlords of the building including that Mr. Rock was being evicted without cause.

LGBT Weekly spoke to Steve Rock, the owner of the building Karen Sherman, as well as staff and patrons. We wanted to ensure that the community and long-term patrons of The Hole got the full story from all sides.

First, was the lease for The Hole terminated by the landlord? The simple answer is yes. Ms. Sherman indicated that the reason for the lease termination was the condition of the building that was related to the operation of the facility by Mr. Rock. According to Ms. Sherman, Mr. Rock has been on a month-to-month lease since 2008 and was aware of their desire to buy the business since 2013. Ms. Sherman also indicated that the only way she could afford the needed repairs to update the facility was to raise the rent again and Mr. Rock had indicated that was unacceptable. Further, the City of San Diego issued the landlord a warning that if the facility was not cleaned up they would face fines. “That’s why we put a six-month break clause in the last lease, to try to ensure the facility would be maintained in good order. Unfortunately, it wasn’t,” Sherman said.

At the expiration of the previous lease in 2008, Mr. Rock told Ms. Sherman that the recession had severely hurt his business, so a month-to-month lease was agreed at under $0.90 per square foot with no annual increase and full use of the adjacent lot to allow staff and patrons a place to park. It has been alleged that Mr. Rock was also renting spaces in the parking lot to supplement his income and not using it completely for patron parking. Mr. Rock has vehemently denied this allegation.

In late 2013, the rent for The Hole increased from $0.90 per square foot to $1.00 per square foot. Mr. Rock indicated that this rent amount was appropriate but the rent increase was difficult because The Hole operated basically on one good business day a week; Sunday. “I do not make any money the other days of the week, in fact I only stay open on weekdays because I have too,” Steve Rock said on Friday.

In 2014, Ms. Sherman made a “generous” offer to Mr. Rock to purchase the business and the liquor license for 2.5 times the net income that Mr. Rock verbally stated he was making. Mr. Rock rejected the initial offer of $100,000 but indicated that he would sell for $200,000 earlier this year. Ms. Sherman said “When we began pursuing our own liquor license and notified (Mr. Rock) appropriately, he again offered to sell at 5 times the net income, stating that the real value should be 10 times the annual profit. We offered him 2.5 times the net income plus a monthly consulting fee to Mr. Rock for a negotiable number of months to smooth over the transition.  We further stated that if he could demonstrate that the bar had a value higher than that, we could arrange for financing to purchase it at a higher value.” Mr. Rock said he refused to provide Ms. Sherman financials to determine the bar value. “She was going to use the financials to drive the price down, plus I had no formal offer in writing that was acceptable.”

While the rent has been a major point of contention, Ms. Sherman asserts that “A retail facility suitable for a bar or restaurant with an outdoor patio in Point Loma is $3.80 per square foot at Liberty Station plus triple net.” Even considering the facility issues with The Hole, Mr. Rock is paying only $1.00 per square foot for the interior space and usable outdoor space/patio, which does not include the front and rear parking. Ms. Sherman also indicated that Mr. Rock understood that the terms of the lease stated that he was renting the facility “as is” and was required to make repairs as needed for the business. However, she indicated that Mr. Rock was able to deduct approved repairs from his rent.

A member of The Hole staff indicated that they could not believe that Mr. Rock was not making substantial income given the level of rent he was paying. “Steve makes the rent from one cash register on any Sunday during a month.” Mr. Rock indicated that the perception that The Hole is a goldmine is unsubstantiated. “We are known for the cheapest drinks with a very heavy pour, just read the Yelp reviews. We needed to create an environment where the community would leave Hillcrest and we have been successful on Sundays,” Rock said.

When asked about the amount of revenue generated on a monthly basis, Mr. Rock did not want that information revealed to the public. Mr. Rock was also asked where he thought he could rent a new location paying only $3,500 for a similar sized facility, plus parking and substantial outdoor space. Mr. Rock simply stated a bar’s rent should be no more than 7% of revenue and that business owners who do not adhere to this rule fail. “Why do you think a bar fails that pays $12,000 a month rent in Hillcrest,” Rock said.

Why couldn’t the two parties resolve the issues to keep the current relationship? The issue seems to be trust. Mr. Rock thinks that the landlord is trying to “steal the bar” away from him. “I saved The Hole from being closed 17 years ago. Nobody wanted to purchase the bar. I was told that she (Ms. Sherman) was going to buy the bar for her son who was going to create a trendy bar, now it seems she wants to steal The Hole,” Rock said. Yet Ms. Sherman feels that she has made every effort to try to buy the bar at a fair market price that can be justified by financial information. “Although Mr. Rock’s stated sales price may or may not be reasonable, without a view of the (profit and loss) for the bar, we could not validate the price, nor could we seek financing based on an unverifiable number.” There is even a dispute as to which party owns the fixtures within the building. The Hole situation is a simple stalemate unlikely to be resolved.

The building owners plan to continue operating the business as the “Hole in the Wall” catering to the LGBT community and the location’s long-term patrons.  “For decades our location has been a great social meeting place for members of the LGBT community. We plan to continue the tradition offering the same look and feel but with upgraded facilities like new bathrooms and landscaping,” Ms. Sherman said. Asked about the rumors that she was planning to sell the location to developers for condos, Ms. Sherman said, “Of course selling to developers was a back-up plan for us but we have chosen to maintain the facility as a historic LGBT place in San Diego provided it has the support of the community.”

The current staff of The Hole plans to stay with the new bar operated by Ms. Sherman. One staff member indicated that Mr. Rock had asked them not to work for the new owners because he wanted the new bar to fail. “We were asked not to continue working here but we need to work and are happy with our interactions with the new owners.” Mr. Rock vehemently denied the assertion. “I only wanted the staff not to negatively impact my negotiations with the landlord by leaking information to them.”

Long-term patrons seem to have a wait and see attitude concerning the bar. One patron indicated “We are not wedded to the owners of the bar, we come for the people and the atmosphere. An upgrade to the facilities will be welcome as long as it does not turn the bar into something that changes the clientele.”

The first official day as the Hole in the Wall will be July 9th, 2015. Unless of course the parties somehow come to an agreement. Now that would be a whole ‘nother story.