LA WATCHDOG - It pays to wine and dine your friends in high places, especially if that crony is Herb Wesson, your smiling representative on the City Council.
On October 5, the City Council approved, with no discussion or dissenting votes, a $2,629,000, 20 year, low interest rate loan to the new owner of Harold & Belle’s Creole Restaurant and Catering, Ryan Legaux, the grandson of the founders. (Link)
Of this amount, over 90%, almost $2.4 million, is being used to buy out the existing owners, his mother and his father’s long time business partner, and to refinance the existing mortgage debt of $1.2 million, despite the fact that the restaurant is losing money.
The remaining loan proceeds, along with an investment of almost $300,000 by Ryan Legaux, will be invested in the $351,000 remodeling of this landmark restaurant located on Jefferson between Crenshaw and Arlington in Wesson’s Council District 10, the purchase of a food truck for $95,000, and the funding of an interest reserve and loan fees of a touch more than $100,000.
As it turns out, the financial light bulbs at the Los Angeles Community Development Department (the “CDD”) have not even completed a basic credit analysis on this dicey loan since it does do not have any historical financial information or the federal tax returns. Nor is this City Department requiring the new owner to personally guarantee the loan, and nor is it demanding restrictive covenants on the owner’s compensation arrangements, even though these are standard covenants in any normal commercial loan agreement.
In addition to hoping and praying that the new owner is going to be able to turn this money losing restaurant into a cash machine, the CDD is relying on the collateral value of the real estate and the business to guarantee repayment over the next twenty years.
But if the business is a bust, the $2,000,000 appraised value of the real estate is inadequate to cover the loan. And this appraisal of the land implies a value of $6,000,000 an acre, an amount that is even greater than what Boston Frankie McCourt and Princess Jamie paid for one of their Holmby Hills pads at the peak of the market.
The stated reason for this $2.6 million politically motivated loan is the preservation of 50 jobs at the Harold & Belle’s Creole Restaurant and the creation of 26 new “living wage” jobs at the restaurant and the new food truck.
However, the preservation and creation of these 76 jobs in this part of the City with “disproportionately high levels of unemployment” could be accomplished with an investment of about $154,000 by either the City or private investors, which along with the promised $292,000 investment by Ryan Legaux, would fund the $351,000 remodeling of the restaurant and the $95,000 purchase of the new food truck.
In this case, the City would save almost $2.4 million by not having to finance the bailout of the existing owners or repay the existing mortgage debt.
Needless to say, this unconscionable, politically motivated deal stinks, all the way to New Orleans and back.
And for the wannabe City Council President Herb Wesson, this poorly constructed loan is a horrible precedent that reflects the fundamental contempt of this Sacramento tainted politician for the City’s coffers, its reputation, its well being, and all Angelenos.
Herb, are all these free meals and hospitality worth trashing your reputation?
(Jack Humphreville writes LA Watchdog for CityWatch He is the President of the DWP Advocacy Committee and the Ratepayer Advocate for the Greater Wilshire Neighborhood Council. Humphreville is the publisher of the Recycler -- www.recycler.com. He can be reached at: [email protected] ) –cw
Tags: Harold & Belle’s, Herb Wesson, Council District 10, Community Development Department, CDD, City Council, Los Angeles
Vol 9 Issue 82
Pub: Oct 14, 2011