Restaurants-R-Us

The Hamlet-on-Olde-Oyster-Bay, a homeowners association/condominium, was an almost instant sellout when the 370 single-family homes, carriage houses, and town houses went on the market in June 2000. Indoor and outdoor swimming pools, a spa, tennis courts, men’s and women’s card rooms, and a children’s playground were among the amenities on the grounds of the “lifestyle” gated community in Plainview, Long Island, just adjacent to the Long Island Expressway.

There was no golf course, as in many other such developments, but a big draw was the promised fine dining restaurant in the clubhouse. It would include a full bar, small dance floor, and seats for about 150 people in a soaring glass atrium with expansive views of a five-acre man-made lake and lit fountain plumes. Another 200 people could be accommodated in the ballroom.

Little did the homeowners know that they themselves were eventually to become the restaurateurs, and the restaurant would come to be a source of contention and financial agony. The experience at The Hamlet offers a cautionary tale for other boards that may inadvertently and unwillingly find themselves in the restaurant business.

At first, all went well at The Hamlet, according to Lew Kroll, a retired businessman and one of the development’s original homeowners, who served as president of the homeowners association’s board and is currently the treasurer. Residents started to move in by late 2001; the restaurant – which the developer, The Holiday Organization of Westbury, New York, dubbed “Areca” (after the palm trees in the dining room) – opened in 2002.

According to a write-up in Nation’s Restaurant News, it featured a dinner menu that included “seared local striped bass in lobster-and-wine emulsion with baby bok choy and braised veal breast with local vegetables, summer truffles, shallot confit and chive potato puree.” The New York Times praised the food. Breakfast and lunch were also offered. While the food was good, the restaurant was assured of a steady income by a requirement that owners spend monthly minimums, ranging from $150 to $200.

The developer was running the restaurant as a separate company under a renewable lease outlined in the offering plan and also opened Areca to non-residents through a membership program. Reservations were required so that non-residents could be allowed into the gated community by the security guards. The developer told The New York Times that the goal was to operate the restaurant at a break-even point as an amenity for the owners.

There was trouble brewing, however. According to one person who asked not to be named, some residents were opposed to the concept of the restaurant from the very beginning. That faction became even more incensed at the idea of allowing outsiders to use what had been promoted as an amenity for the property owners.

Others complained about the fancy food. “People would come to meetings and say, ‘Why can’t we get tuna fish?’” recalls Robert Mayer, an owner who later served as treasurer of the homeowners association. “This is a very mixed community,” he adds, noting that even though the offering plan was clear about what the restaurant would be, some residents thought changes should and could be made.

The relationship between the developer and The Hamlet was further complicated when the homeowners association sued The Holiday Organization over construction-related issues. The legal wrangling, which grew more tangled over the years, still drags on; some issues are in the courts and other issues – including questions over whether the developer was up-front about the restaurant in the offering plan – have ended up in the office of the state attorney general. (Holiday officials no longer have any involvement in the restaurant and declined to comment.)

At some point, notes Kroll, breakfast and lunch were discontinued because of poor attendance. Dinner prices were high enough that residents could still spend their monthly minimums, which then increased by 10 percent. But the relationship deteriorated, and, in the spring of 2004, the developer sold the lease after first offering it for about $800,000 to the homeowners association, which turned it down, says Mayer, the managing partner of Mayer & Co., an accounting firm with many co-op, condo, and HOA clients.

The new operator, which court papers list as Dinner Club Corporation, put in a less expensive menu and stepped up the catering operation to outside groups, according to Kroll, Mayer, and court records. Frequently, as many as 50 cars from non-residents headed to a ballroom affair. The cars were stacked up on the very short service road while waiting to get clearance from security guards making it impossible for residents to return home quickly. The food, service, and housekeeping in the restaurant itself deteriorated, observes Kroll.

The new restaurateur appeared willing to work things out, but when nothing changed, Kroll and other board members walked out of a meeting. “We saw that we were just getting lip service and nothing concrete was going to be done,” Kroll says. (Dinner Club Corporation officials could not be located for comment.)

To pressure the restaurateur, the owners began withholding their monthly restaurant minimums, putting them into escrow instead, which prompted legal wrangling that ended when the courts decided against the homeowners association. (The lawyers who handled the case for the homeowners association declined to comment.)

But, finally, the homeowners association got its out. The land for The Hamlet had been deeded by the town of Oyster Bay, which granted the necessary zoning permits, and, Kroll says, the lawyer for the association found in the original paperwork a covenant stating that The Hamlet’s clubhouse “shall be limited to services provided exclusively to the members of the homeowners’ association of the development and their guests.” That meant no outsiders, despite what the offering plan said.

At about the same time, the court decided that the two sides could no longer mutually cohabitate and appointed an arbitrator to arrange a buyout. By fall 2005, the buyout cost was settled at $1.15 million, more than $300,000 above what the board could have gotten it for earlier, notes Mayer, who wasn’t on the board at the time. The homeowners association had just a fraction of the needed money in its reserve fund, says Kroll.

The board went to the bank to secure a loan, but at the same time asked owners to approve a resolution for a flat $4,000 payment per unit-owner, which would cover the arbitrated fee plus costs for new tables and chairs, dishes, silverware, and a computer system, all of which the ousted leaseholder was legally allowed to remove. The vote squeaked by, and the bank loan wasn’t needed.

Residents formed a committee to go about the process of retrofitting the restaurant, which had closed. But when the board looked around for guidance from other condo associations, they couldn’t find any that had a restaurant that didn’t rely on golf course memberships to bring in a guaranteed stream of customers, Kroll reports.

So they were on their own. Finding the right formula took two tries. At first, a dozen potential restaurant operators were interviewed with the contract going to a local, family-run company that had experience in commercial and institutional-type kitchens but none in restaurants.

“In retrospect, it was a poor decision,” Kroll says. Indeed, notes Mayer, the contract didn’t include a budget guideline for the new operator to follow, and, within three months, the restaurant had racked up a $250,000 deficit, despite having a menu created by The Hamlet’s restaurant committee. Some of that was recouped in negotiations to end the contract, but the rest had to be covered by a homeowners’ assessment.

The Hamlet board finally got the break it needed as it searched for another operator. The father of one of the community’s homeowners was, fortuitously, in the process of selling his restaurant in nearby Great Neck, Mayer recalls. The father was quickly hired to run The Hamlet’s restaurant under a contract requiring him to cover all costs using the monthly owner minimums, Kroll says. Many staff members from the previous restaurant followed him to The Hamlet, as did the chef, Mayer says. Any profit is shared with the homeowners association.

The menu at the restaurant boasts everything from an $8 warm, grilled-vegetable Napoleon and a $25 pistachio-crusted rack of lamb to less-pricey burgers and salads. “The food is delicious, the service is fine, the manager is a gem,” Kroll reports, noting that the restaurant, open six days a week for dinner, is usually three-quarters full and “has been such a success with the residents that they are spending well over their minimums, which may even produce enough revenue to make additional repairs.” Still, he adds, “we’re not looking to make money here. This is for the homeowners, nothing else.”

The restaurant “is operating very profitably” and is still overseen by the restaurant committee, which meets with the operator once a week, Mayer says. Although there has been some grumbling about whether snowbirds who decamp to Florida for the winter can roll over their minimums to be used when they are back in town, the majority of owners, Mayer concludes, “are very happy.”