The high price of liquor licenses in Boston has always been a barrier to entry for restaurateurs, but that didn’t faze Palmer Matthews, who budgeted $350,000 to buy one on the secondary market.
As he and his partners got close to signing a lease last spring, however, sticker shock struck: The going rate for a full-bar license surged to more than $500,000. They shelved their plans to open a restaurant.
“No way we could justify that kind of investment,” said Matthews, a former Boston bartender who has opened two restaurants in Quincy, Pearl & Lime and Townshend, where liquor licenses are a fraction of the cost. “The long and short of it, it’s prohibitive in a way that it is hurting [Boston] in a lot of different ways.”
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Daniel Roughan has also paused his search for a Boston spot for his next restaurant and is instead looking in Brookline, Burlington, and Wellesley.
“Boston doesn’t make sense because of the liquor license,” said Roughan, who owns Source in Harvard Square. “It’s a shame for the people of Boston who will miss out on a lot of great young chefs and operators that will go elsewhere.”
It’s a story we’ve heard before, but this time it’s more unsettling as Boston recovers from a pandemic. While scores of restaurants shuttered for good during the COVID-19 public health crisis, others are clamoring to fill the gap. In an industry with notoriously thin profit margins, that means big landlords and deep-pocketed restaurateurs are increasingly the only ones who can stomach the high cost of doing business in Boston. That’s shutting out smaller players with more modest resources, especially those of color in lower-income neighborhoods.
The state caps the number of liquor licenses in Boston. Over the past two decades, the Legislature has allowed the city to issue new ones, but demand continues to outstrip supply. That means if restaurateurs want a license, they mostly likely have to negotiate a sale directly from an existing holder.
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A recent high mark for such a transaction: a $600,000 sale of a full-bar liquor license to the restaurant and lounge attached to View Boston, the newly opened observatory perched at the top of the Prudential Center, where admission alone is $34.99 for adults.
That’s according to data from the Alcoholic Beverages Control Commission detailing the 15 Boston liquor licenses sold since March. The next most expensive: a $575,000 license to serve cocktails in the 11th-floor dining and lounge space at the new One Congress tower. Then there was a $550,000 transaction involving a massive bowling alley and restaurant concept space at the new Hood Park complex in Charlestown.
Of the 1,100 or so liquor licenses for restaurants, most are in use, but others may be held by landlords or restaurant owners, waiting to be deployed when the timing is right, according to brokers and lawyers in the hospitality industry.
The situation resembles the housing market, where inventory is tight and buyers are stretched because potential sellers won’t budge from their high price points.
“It is a bidding war for these licenses right now,” said Lesley Delaney Hawkins, chair of the restaurant and hospitality practice group at Prince Lobel law firm. “The positive is that people want to still come in and invest in Boston . . . the negative is the concern of pricing people out of the market.”
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One of those eager to obtain a liquor license is Hawkins’s client Andy Husbands, who is bringing his Smoke Shop BBQ concept to East Boston. But, for the first time in his decades-long career, Husbands will open a restaurant without serving alcohol.
While restaurants tend to make most of their money from alcohol sales, Husbands said he won’t be able to make the numbers work on a 90-seat restaurant if he has to spend $500,000 for a liquor license. He has several locations in the area, including in Cambridge and Somerville. A license might make sense if his Eastie space was bigger.
“We’re not some fancy restaurant,” said Husbands, who is also Smoke Shop’s pit master. “It’s unfathomable to pay that amount of money. How can we ever pay that back?”
Husbands came to East Boston hoping to get a so-called restricted license, which can be obtained from City Hall directly. This type of license cannot be transferred, and must be returned to the city when a restaurant closes. Many restricted licenses are for underserved communities to create jobs for residents and give opportunities to restaurateurs of color.
Husbands said he has waited more than two years for one of the 10 restricted licenses in East Boston to become available. “Now that seems to be a fool’s errand,” he said.
A bill filed on Beacon Hill, with the blessing of the Boston City Council and Mayor Michelle Wu, calls for adding a handful of restricted licenses in 10 ZIP codes annually for five years. The bill would create as many as 250 new licenses in neighborhoods that could use an economic boost, including East Boston, Dorchester, Roxbury, Mattapan, and Hyde Park.
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But supporters will have to wait until at least next year before there is any action on the measure. In an interview, state Representative Tackey Chan, a Democrat from Quincy who serves as cochair of the joint committee that reviews liquor licenses, said he isn’t scheduling the first hearing on the Boston bill until the fall.
Chan said he understands the urgency, but he also wants to discern the impact of a bill that would represent a substantial increase — potentially more than 20 percent — in the number of liquor licenses to Boston restaurants.
“One of the objectives is that we don’t want to adversely affect the value of existing license holders,” said Chan. “We want to ensure that all liquor licenses proposed will actually be utilized.”
Nick Korn, principal at Offsite, a restaurant training and development firm in Boston, said the state shouldn’t be concerned about propping up the value of licenses. Offsite’s analysis indicates that so far the addition of more than 100 new licenses since 2006 has not led to a price drop on the secondary market.
“The government is complicit in prolonging a fundamentally unequal system based on artificial scarcity,” Korn said.
Josh Weinstein, owner of The Quiet Few in East Boston, was among the lucky ones to score a restricted license in 2018. He wanted to open a tiny, no-frills neighborhood whiskey tavern ― it’s only 1,000 square feet with about 40 seats.
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“You get so much personality in a small space,” he said.
Weinstein was surprised to learn that Husbands’s new Smoke Shop won’t feature the local chain’s well-known American whiskey program. With all the residential development underway, Weinstein said, East Boston needs more restaurants and bars.
“That breaks my heart they are opening without a liquor license,” he said. “Not only do I love his food, I was so excited. It’s a missed opportunity for East Boston to be a destination for whiskey lovers.”
Shirley Leung is a Business columnist. She can be reached at shirley.leung@globe.com.