This is Quince Alley, which sits between South Water and South Front streets. The building on the right has been several different restaurants. This was shot from near Water Street and looking down the alley toward Front Street. The building in the background is still there with the same structure, which is what is shown on the map below:

This location serves as a conflict zone in which the boys all get serious with each other. Dinger (Corey Haim) and Derek (John Ward) show up to find Joel trying to exact lethal revenge on Dumas (Matt Adler) and his gang.