Restaurateur Doesn’t Want 2nd Helpings : Business: John Leonudakis got what many consider a sweet deal to run a posh city-owned restaurant in Irwindale. But now he wants to give up his lease.

Three years and nearly half a million meals after opening the city’s fanciest restaurant, John Leonudakis wants out.

Since July, the Reno, Nev., businessman has been trying to sell back his lease on the swank Rapscallion Seafood House and Bar to the city, which owns it. Leonudakis is frustrated with the Irwindale City Council, said John Ekizian, Rapscallion’s manager and Leonudakis’ second in command at the restaurant.

City officials claim that Leonudakis is unsuccessfully trying to run the restaurant from his headquarters in Reno and has reported losing $250,000 a year even though the restaurant serves 2,000 meals a week.

Either way, talks are under way between Leonudakis and the city, which may buy back the lease for an estimated $350,000, in hopes of negotiating a more lucrative agreement with another operator.

If such a settlement is reached, it will close a brief and novel chapter in Irwindale’s ongoing effort to get the city a nice place to eat.

Located next to an abandoned gravel pit on Irwindale Avenue, Rapscallion is acknowledged as the city’s most posh restaurant. Surrounded by shrubbery and a plush lawn, it sits in contrast to the otherwise bleak Irwindale landscape north of the 210 Freeway.

The gravel pit once was intended to become a stadium for the Los Angeles Raiders, and Rapscallion stood to become the fans’ No. 1 watering hole. But the deal to lure the Raiders to Irwindale fell apart last year. Neither party in the current Rapscallion lease negotiations cites the Raiders as a factor.

The city built the restaurant in 1986 for $2.4 million after efforts to woo an outside restaurant to Irwindale failed.

City officials said it was a matter of pride and practicality. To be taken seriously as a business center, Irwindale had to have a serious restaurant.

“We needed a nice place for our local businessmen to take the people they do business with,” City Manager Fred Herrera said. Other restaurants have since opened in Irwindale, but at the time, Pudgy’s, a taco and hamburger stand, was about the only place to eat.

Persuading a restaurant chain like Velvet Turtle or Charlie Brown’s to open a branch in Irwindale--population 1,100--proved impossible, Herrera said, so the city chose to build its own facility and asked Leonudakis to run it for them.

Leonudakis, who did not return numerous phone calls seeking comment, told The Times in a 1987 interview that he was initially hesitant about running a restaurant in Irwindale.

“It didn’t make any sense,” Leonudakis said. “I looked at the emptiness of this area and I asked myself: ‘Where am I going to get the people to work for me? Where am I going to get the customers?’ ”

But the city’s offer to lease the restaurant to Leonudakis at an extremely favorable price persuaded him to take the chance. In March, 1987, Rapscallion opened for business.

Almost immediately, Leonudakis and the City Council clashed.

The city had originally budgeted $2 million to build, furnish and equip the restaurant. When the final figures were in, however, costs totaled $2.4 million.

The city placed much of the blame for the cost overrun on the lavish furnishings Leonudakis had used to decorate the restaurant, including a 20-foot handmade mahogany bar, mahogany tables and cabinets, stained-glass panels and a large beveled-glass mirror for the bar.

Abe Dedios, Irwindale’s finance director, said Leonudakis took responsibility for part of the cost overruns but said the city should pay the rest.

Although the dispute was eventually settled out of court, with Leonudakis agreeing to pay the city $300,000 over five years, it set the tone for the relationship.

When he agreed to run Rapscallion, for example, Leonudakis also wanted to develop an adjacent one-acre parcel of land into an office complex to provide a close source of customers for the restaurant, Ekizian said.

Bureaucratic red tape delayed the project, Ekizian claimed, and it was only this year that Leonudakis got the go-ahead to start development.

“The city kind of prolonged the developing process of the parcel” to the detriment of the restaurant, Ekizian said.

City officials deny delaying the project and say Leonudakis could have purchased the land at any point in the last three years but waited until this year to do so.

Finally, Ekizian said, in May the city failed to notify the restaurant when it began repair work on Irwindale Avenue near Rapscallion. The work went on for several weeks and made customers’ access to the restaurant difficult and on at least one occasion impossible, he said.

City officials counter that they had no choice but to fix the road.

Although Rapscallion does a healthy business, serving about 2,000 meals a week, “there have been a lot of little things that the city has been uncooperative on,” Ekizian said, and it is this “constant harassment” that is causing Leonudakis to try get out of the 17 years remaining on his lease.

“There’s bad blood somewhere along the line,” he said.

City Atty. Charles Martin, however, denied that Leonudakis’ decision to sell was based on conflicts with the city.

“I’m not aware of any bad taste in his mouth,” he said. “As far as I’m concerned it’s been a very pleasant relationship.”

Nevertheless, Martin and other city officials said they are not fighting Leonudakis. In fact, for financial reasons, they say they would welcome the chance to bring in another operator.

Under the 20-year lease Leonudakis signed in 1987, he would pay the city $80,000 a year for the first three years and $180,000 a year for the next 17 years. He could also opt to buy the restaurant at any point for the same amount it cost the city to build, plus $300,000.

A lease so favorable to the renter is rare in the restaurant industry, said Gerald Breitbart, a consultant on business issues and local government regulation for the Restaurant Assn. of California.

A fully equipped restaurant like Rapscallion would normally rent each year for about 10% of its worth, or $240,000 in the case of Rapscallion, Breitbart said.

City officials acknowledge that the lease is lopsided.

“We could have made a better deal,” said financial consultant Rudy Silva, who is negotiating the Rapscallion buyout for the city. “I think we can do better with a different operator in terms of return to the city on their investment.”

But finding another operator may be difficult.

Silva said the city will again try to get a restaurant chain like Velvet Turtle to open a branch on the Rapscallion site.

David Orcutt, finance director for Velvet Turtle Restaurants, said Irwindale does not appear to be a likely spot for one of the upscale chain restaurants because of its small population and median income of less than $30,000.

“It doesn’t seem like a likely place for anyone to come into right now,” Orcutt said.

But city officials insist that an elegant restaurant can be profitable in Irwindale if properly managed.

Martin said Leonudakis reports more than $2 million in gross sales annually but claims to have lost $250,000 each year the restaurant has been open.

“Something’s not right,” said Councilman Sal Hernandez, who speculated that Leonudakis cannot run the restaurant effectively from another state.

Ekizian said he is unfamiliar with specifics of the restaurant’s finances but maintains that it is well run and does a healthy business.

Hernandez opposes the buyout and says the city is letting itself be used.

“I can’t see us bailing them out,” Hernandez said. “We took a loss from the beginning, and we’re taking another loss now (in the buyout). . . . Let him go under.”

Others think the buyout will in the long run make money for the city. By buying the lease and then renting the restaurant to another operator at a higher rate, the city will profit, Silva said.

“I’m not looking at it as we’re doing a favor for Leonudakis,” Silva said. “I’m looking at it as a good deal for us.”