Flames broke out at the karaoke bar and restaurant Thursday night.
Employee James Johnson says he was inside at the time and was the first to notice the smoke.
"In those couple of seconds I get back there grabbing the fire extinguisher, it just went quick. Black smoke everywhere. Can't see and the power went out," Johnson told NewsChannel 3's Todd Corillo.
Johnson says the fire extinguisher malfunctioned and he, another employee and a regular customer inside at the time were forced to get out.
"By that time there was so much smoke, we started coughing and we had to evacuate. Call 911 and firefighters showed up," he stated.
Firefighters had trouble initially when they discovered electrical equipment was involved, forcing them to temporarily back out.
Power had to be cut to neighboring businesses like Furst Choice Doggy Day Care.
"We had started getting a little bit of the overflow smoke coming into the building, so we didn't want the dogs to be breathing that in, so we started getting them out of the building as fast as possible," explained manager Kristine Matter.
All of the dogs were safely moved to the veterinary clinic next door.
Reef employees like Johnson were disappointed by the extensive damage to the restaurant, which has been a part of Shore Drive since the 1960s according to its Facebook page.
"A lot of people - a lot of regulars - it's like a second home or whatever. It's sad," Johnson said.
Volunteer Fire Chief Wayne Richardson with the Oceana Volunteer Fire Department was back on Shore Drive Friday thanking surrounding businesses who supported the firefighters during the fire.
He said the McDonald's, Dunkin'Donuts, Guadalajara Mexican Bar & Grill and Cape Henry Citgo all provided coffee or shelter for the firefighters.