Cooking Up A Loan

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Ryan Legaux wants to keep his restaurant in the family. But it hasn’t been easy.

Legaux is the general manager of Harold & Belle’s Restaurant in L.A.’s Jefferson Park neighborhood. He has been trying to buy the landmark Creole restaurant from his recently widowed mother and her business partners. But as a first-time entrepreneur, he’s been rejected by banks.

“This restaurant has been a family tradition and I want to continue that tradition,” Legaux said. “But I’m essentially a startup operation taking over an existing restaurant and, as such, I certainly have found out just how tough the credit markets have been.”

Without the financing, the restaurant could be sold to outsiders. If no buyer emerges, it could be forced to close and the property sold for other development, with a loss of 50 jobs.

Legaux has turned to the city of Los Angeles and a loan program financed by the federal Department of Housing and Urban Development. The city has proposed a $2.6 million loan for Legaux and his wife to buy and renovate the restaurant. About 80 percent of the money would go toward buying out his mother and her business partners. Legaux would put up to about 10 percent of the loan amount.

The loan package could go to the City Council in the next several weeks; then it would have to get HUD approval, a process that could take a couple more months.

Program maxed out

But the loan’s prospects aren’t certain. The city is close to reaching its $326 million allocation for the loan program for the current fiscal year, which will end June 30. There are currently 31 outstanding loans. The biggest is a $30 million credit to CIM Group, owner and operator of the Hollywood & Highland shopping complex, to aid in the conversion of the Kodak Theatre to accommodate Cirque du Soleil’s “Iris” show. Other loans have been made for office buildings, shopping centers and industrial parks.

Another three loans are in the pipeline, including the one to Legaux. If all three loans were to be approved for the total amount being sought, the city would exceed its allocation by about $2 million, raising the possibility that one of the loans could be rejected or the three loans could be approved for less than the full amount.

City officials are closing the program to additional applications for the rest of the fiscal year.

The HUD loan program was designed to provide gap financing for developers and other projects that lead to the creation of jobs for moderate and low-income residents.

“We’ve got 13.5 percent unemployment in Los Angeles and we’re trying to use every tool we can,” said Ninoos Benjamin, director of the economic development division of the city’s Community Development Department. “The private banks aren’t making as many loans to business, even with federal guarantees like those in the (Small Business Administration) program, so that leaves programs like this.”

But some ask why government should step in at all.

“Why is this business more deserving of help than all the other struggling businesses?” asked Steve Mednick, assistant professor of clinical entrepreneurship at the Lloyd Greif Center for Entrepreneurial Studies at the USC Marshall School of Business. “If the city sets an example by bailing out this business, why not the dry cleaners next door?”

Mednick said that rather than structure loans for a chosen few businesses, the city should focus more on reducing costs and improving services for all businesses in the city, including cutting the business tax.

Benjamin at the Community Development Department said the loan to Legaux would preserve 50 existing jobs and enable the creation of two dozen additional positions as the restaurant expands. Those jobs are in an area of the city facing particularly high unemployment, he noted.

The Legaux loan and the others under the HUD program carry some risk for the city. In the event of any defaults, the city must make up the difference to HUD by forfeiting an equivalent amount in future Community Development Block Grant funds that go to low-income communities.

So far, Benjamin said, none of the 31 loans is at imminent risk of default, though he said some of the borrowers have run a little behind in their payments.

Family dynasty

The loan to Legaux would help ensure that Harold & Belle’s remains open during the transition of ownership. Since its founding in 1969 by Louisiana immigrant Harold Legaux Sr. and his wife, Belle, the restaurant has become a local landmark, serving up gumbo, oyster po-boy sandwiches, crawfish etouffee and other Louisiana delicacies. Among the fans over the years: the late Mayor Tom Bradley, television host Tavis Smiley and current Mayor Antonio Villaraigosa.

When Harold Legaux Sr. died in 1979, the restaurant passed to Harold Legaux Jr. and his wife, Denise. Five years later, Harold Legaux Jr. brought in business partners Al and Sue Honore to help finance an expansion and renovation of the restaurant. The place now seats about 125 people, and serves between 2,500 and 3,000 customers per month, generating an estimated $1.2 million a year in revenue.

About a year ago, Legaux and the Honores were getting set to retire; Legaux was suffering from pancreatic cancer. They wanted to monetize their investment and preferred to keep the business in the family. Their selling price: about $2.4 million.

Ryan Legaux has been general manger of the restaurant for several years. He wants to update the restaurant equipment and open up the seating areas to increase capacity. He also wants to buy a food truck. Those expenses would total nearly $500,000.

But when he tried to get bank loans, he didn’t have sufficient money to meet tough down payment requirements that banks put in place after the 2008 financial meltdown.

Harold Legaux Jr. died in February at 61, making the succession issue urgent. So Ryan Legaux turned to the city.

USC’s Mednick said Legaux has options besides the HUD loan. He can try to negotiate gradual ownership transfer or he can seek investors among the restaurant’s fan base.

“With a restaurant like this, that has demonstrated deep ties with the community, perhaps there are celebrities or other wealthy people who can be persuaded to put up some money,” he said.

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Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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