30 Sep 2011
- Written by Jack Humphreville
LA WATCHDOG - Why is our cash strapped City financing the leveraged buyout of the struggling Harold & Belle’s Creole Restaurant and Catering, a landmark watering hole located in Herb Wesson’s Council District 10, on West Jefferson Boulevard between Crenshaw Boulevard and Arlington Avenue?
Founded in 1969 by New Orleans transplants Harold and Belle Legaux, this 150 seat restaurant is renowned not only for its gumbo, catfish poboys, seafood platters, beans and rice, and, of course, its crawfish etouffee, but its excellent service, friendly atmosphere, and reasonable prices. (Link)
What’s not to like?
But that does not mean that the Community Development Department needs to be arranging a $2,629,000 Section 108 Loan from the United States Department of Housing and Urban Development Department to finance the grandson’s leveraged buyout of the land and business, the remodeling of the restaurant’s interior, and the introduction of a food trailer to serve off-site patrons at major events.
Of the $2,629,000 loan, only 17%, or $446,000, is being invested in the business, including $351,000 for the remodeling of the 5,300 square foot restaurant and $95,000 for the acquisition of a food trailer and towing vehicle.
On the other hand, $2,370,000 is being used to finance the acquisition of the business, the building, and the 14,419 square foot parcel of land. Of that amount, $1.2 million will used to repay an existing first mortgage on the property. The balance of $1,170,000 will be paid to the two equal owners, Denise Legaux and her deceased husband’s long time partner, Al Honore: $570,000 at the closing and two $300,000 payments over the next two years, assuming the enterprise has profits of at least $300,000 per year.
Of course, underlying this politically motivated transaction is JOBS, JOBS, and more JOBS, including the preservation of 50 full time equivalent jobs in a part of the City with “disproportionately high levels of unemployment” and the creation of 26 new permanent full time equivalent jobs paying the City’s living wage.
But why would the owners of a potentially very profitable business close its doors and lay off 50 workers if they were unable to sell this landmark restaurant?
And do you need 26 new employees to operate and supply the new food truck and service the restaurant’s existing business?
In reviewing the very limited financial information, the average compensation for the 76 employees is projected to be $7,300 a year, and increases to almost $11,000 if tips (15%) are included, hardly matching the “living wage” standard.
In addition to the dubious claims about the preservation and the creation of “living wage” jobs, there are questions regarding the collateral for the loan. In particular, the 14,419 square foot corner lot is appraised at $2,000,000, implying a value of over $6,000,000 an acre, a value comparable to Beverly Hills.
While this may not be a prudent loan for the City and HUD, it is a great deal for the sellers who cash out at a very favorable valuation; the buyer who has all the upside but very little downside risk since he is not investing any hard cash or guaranteeing any loans; and wannabe City Council President Herb Wesson and his political pals who take all the credit. And no doubt, many free meals and drinks.
Unfortunately, the wine list may not be up to the Mayor’s acquired tastes.
As for the rest us, we have no upside, but could be left holding the bag for a bum loan if the business tanks. The best thing that happens to us is that we get our money back after the loan is paid off in 20 years.
A preferable alternative is for the new owner, Ryan Legaux, to raise the $455,000 needed to remodel the restaurant and buy the new food truck from private sources. Ryan would invest the $300,000 he pledged under the City’s debt ridden scheme and raise the additional money from equity investors interested in owning a piece of this landmark restaurant that has the some of the best Creole food outside of New Orleans.
The current owners would be paid off from the projected profits of the restaurant and the food truck.
Under this preferable scenario, the business would only be encumbered with $1,200,000 of first mortgage debt, a much more manageable amount than the proposed $2,629,000.
And from a business perspective, Ryan and his partners would be much better off since they would not have to put up with the meddling ways and bureaucratic barn biscuits of the City and HUD.
Unfortunately, this deal was approved by Housing, Community, and Economic Development Committee of the City Council on Wednesday, despite numerous unanswered questions.
But maybe this is standard operating procedure in the City of Angels where one of the world’s largest and most profitable architectural design firms, Gensler & Associates, was blessed with $1,000,000 gift to finance its move from Santa Monica to downtown Los Angeles. (Link)
With such cronyism, no wonder our unemployment rate is so high.
Tags: Jack Humphreville, LA Watchdog, Harold & Belle’s, Herb Wesson, Community Development Department, Los Angeles, jobs, Legaux
Vol 9 Issue 78
Pub: Sept 30, 2011