The parent company of Urban Solace in North Park and its sister restaurant in Encinitas filed for Chapter 7 bankruptcy two days after suddenly closing this month.
Separate Chapter 7 petitions were also filed for both Urban Solace and Solace & the Moonlight Lounge in Encinitas. Longtime restaurateur Matt Gordon, who opened Urban Solace in 2007, long before North Park became the dining and drinking mecca it is today, announced the closures just a day before the restaurants served their final meals.
While the news quickly circulated about the restaurant closures, less known were the bankruptcy filings.
"We made every attempt to avoid it but ultimately it became inevitable," Gordon said Thursday. "It's just a buildup of everything over the last two years. We struggled to make ends meet and finally said enough is enough."
In the filing by parent company G.W. Restaurant Group, Inc., Gordon listed the number of creditors as less than 50, assets under $50,000, and liabilities between $100,000 and $500,000. The bankruptcy paperwork for the two restaurants shows a larger number of creditors — between 50 and 99. They range from cheese, bread, meat and produce purveyors to a bank, insurance company and utilities.
Chapter 7, which is essentially a liquidation, allows a court-appointed trustee to sell off a business' assets to pay off its creditors in a prescribed order of priority. In contrast, Chapter 11 allows a company to reorganize and thereafter pay off its debt.
In announcing the closure of his restaurants on Facebook, Gordon spoke of the difficult decision he faced but ultimately concluded that his neighborhood restaurants had run their course. In an interview, Gordon elaborated, saying that sales no longer were keeping pace with rising costs, from labor and utilities to food. In addition, dining tastes, he said, seemed to have changed in North Park, where customers were less inclined to indulge in multi-course meals. Ultimately, he was unwilling to make compromises in service and food quality to trim costs, he said.
"Encinitas still had decent volume where people still were coming out for two- or three-course meals, but it seems like people aren't up for that experience in North Park," said Gordon, who started a new job this week as vice president of operations for Coronado-based Blue Bridge Hospitality, whose portfolio includes a number of venues, including Stake Chophouse & Bar and Liberty Public Market . "A lot of restaurants in our category are struggling and down in revenue, and restaurants already have very thin profit margins to begin with. We chose to operate with high-end products and enough staffing to have the kind of hospitality we wanted."
While restaurant closures are not uncommon — including ones run by well-regarded chefs and restaurateurs — bankruptcy filings are less common and do not automatically follow the shuttering of an eatery, say some experts.
Greg Flores, whose company Flores Financial Services handles the ing services for a number of San Diego restaurants, said he rarely sees bankruptcies associated with restaurant closings.
"It's not the common procedure, but every case is different," Flores said. "Not everyone goes into debt. A restaurant doesn't succeed for whatever reason, they close and you don't hear about a bankruptcy. But if you've got a lot of debt secured by you or your business assets and you're going to fold, debtors will come after you so you will need to file for bankruptcy."
A year ago, Bottega Americano, a high-profile downtown eatery known for its groundbreaking food hall concept, closed after a nearly four-year run and also filed for Chapter 7 bankruptcy. At the time of the filing, the partnership listed assets of $100,000 to $500,000 and liabilities from $1 million to $10 million.
San Diego restaurant consultant John Gordon said the decision to liquidate is usually tied to the level of debt.
"If a small independent goes out of business, oftentimes they will scrape up whatever they can for the landlord and employees and usually don't leave that much of a trail of broken promises behind," John Gordon said. "With a more sophisticated restaurant operator, he may have had outstanding bank lines of credit or high profile leases, whereas the multi-unit operator will have more access to capital or a line of credit."
