Investigative reporting!

We were planning to try out Dominick’s Italian Restaurant in Lakeway this weekend. Dominick’s was formerly known as Ciola’s, but last year the Ciola family sold the restaurant. Lawrence was going to call ahead for reservations, but told me this afternoon that he didn’t get any answer when he called the phone seemed to be disconnected.

We had not seen this report from Rob Balon’s web site:

…[The owner] has decided to return to Kansas.

And I was in kind of a foul mood (for reasons unrelated to dining) and figured a drive out to Lakeway and dinner at Pao’s would help. (It didn’t, much.) Since Dominick’s was on the way, I could see for myself what was going on.

What was going on was that there was a lockout notice on the door, dated May 6, 2011, from a lawyer who apparently represents the former owners. It looks like Dominick’s was subleasing the space from the owners of Ciola’s (who, one can assume, are making their own lease payments to the owners of the space), and were locked out because they owed the following:

  • $6,015.63 for May 2011 rent.
  • $645.82 for April 2011 water bill.
  • $2,882.64 as payment on a promissory note for April 2010.
  • $6,382.64 as payment on a promissory note for May 2010.
  • $278,420.16 as payment on a promissory note for July 2010 (!)

So apparently, Dominick’s has owed over a quarter of a million dollars for close to a year (according to Balon, the sale took place in July of 2010), Ciola’s let the money go this long, and finally moved to shut them down on one of the busiest dining out nights of the week. Interesting.

Also interesting is the amount of money. $275,000+ is a lot of money. As Lawrence put it, “Christ, for a quarter-million you should be able to easily open up your own restaurant just about anyplace but downtown Manhattan…”. I’ll admit to not being an expert on the restaurant business, but certainly $250,000 seems like it should be enough to open a restaurant, especially if you’re using an existing restaurant space (one that doesn’t need to be renovated to be brought up to code). And that’s just the amounts that were not paid; we have no idea how much money changed hands before signatures were affixed to contracts.

I’m not blogging this because I want to poke fun at either the new or old owners; I have some sympathy for both parties. But I think this is blog worthy for the insight it provides into restaurant economics. $6,000 a month for a moderately sized space in Lakeway? $650 a month just for water? How much spaghetti do you have to sell to bring in that kind of money?

(Oh, yeah: the new owners never bothered to change the large sign out in front of the center that said “Ciola’s”, though they did change the name on the awning in front of the building.)

2 Responses to “Investigative reporting!”

  1. Jess says:

    Could you give us an idea how big the space is? Be sure to include all of the space: kitchen, storage, office, etc. Rent varies by region and specific factors related to the property, but I’d like to see how this stacks up against my area.

    I don’t live in Texas, but that water bill, at least, doesn’t seem excessive for a busy or large restaurant.

    The really large debt is probably a lessor-funded “working capital” loan. These seem like ridiculously bad ideas to me, but I just had a “prospective” tenant propose one a couple of weeks ago. (Actually he wants not a loan but an “allowance”, but since in this case the lessee has broken the lease the clawback would have to end up being pretty similar.) Basically, the idea is that if no good businessperson wants to lease your space, and you don’t want to lower the rent, you can find a bad businessperson with no capital of his own and hitch your own credit to his. It’s the commercial-leasing equivalent of subprime housing mortgages, except Fannie Mae doesn’t underwrite these so yeah this is folly on wheels. This sublessor went from losing money in dribs and drabs, operating a business in a terrible economy, in a space he couldn’t quite afford, to losing a giant chunk in less than a year. I too have sympathy.

    I would expect the building owner will take down all the “bad location for a business” notices as soon as her lawyer lets her. Unless the sublessor is fabulously wealthy, he’ll be breaking the lease soon, if he hasn’t already. At that point the building owner will be lucky to attract a tenant at half the rent she’s getting now (or got until recently). It seems to me that if I had a longterm tenant, which due to cyclical economic factors couldn’t quite afford its lease, I’d renegotiate rather than court this disaster.

  2. Earl Cooley III says:

    If I had that much money for restaurant investment, I’d get a KFC franchisee.