LRG Capital's Bahreyni

LRG Capital Group LLC is tapping Shah Bahreyni as its managing director in launching its new LRG Hospitality Group. The company, headquartered in New York City, is a global merchant bank that specializes in private equity, real estate and secured debt financing, as well as financial advisory services. Bahreyni tells GlobeSt.com that LRG Hospitality will provide full-service strategic and financial advisory services to companies in the restaurant, food and beverage industries with a focus on using restaurants to upgrade hotels from Marriots to Westins to independent boutiques across the globe. CEO Lawrence Goldfarb says launching the division is in response to operators and investors “coming to us in need of strategic and financial advisory services on mergers and acquisitions.” LRG Hospitality will also service restructuring and recapitalizing. After starting bussing tables at the age of 18, Bahreyni, 45, brings 20 years of executive experience in the hospitality sector to LRG. He has launched numerous successful chains and completed turnarounds as manager and director of operations for Constellation Concepts (California Cafe). Previously, Bahreyni was with firms such as American Restaurant Group/Spectrum Foods division, Faz Restaurant Group and A. Sabella’s Restaurants. Bahreyni tells GlobeSt.com that “upgrading branding of a hotel’s restaurant is an emerging trend based on the Las Vegas resort philosophy of keeping guests on property as much as possible.” The hospitality operators need to focus on trendy branding and repositioning of and coordination between its normally leased restaurants even more in hopes of drawing traffic, guests or not, Bahreyni says.

GlobeSt.com: Your specialty has been in financing branding and repositioning or launching restaurants in numerous markets. How does that experience transfer to leading LRG’s hospitality sector?

Bahreyni: First, you want to understand I’ve worked with Larry (Goldfarb) on many projects prior to this venture. I’ve worked pretty closely with senior directors of hotels such as Marriott and Westin developing brands for them, expanding brands and restructuring brands as well as on a consultant basis. We’re familiar with that entity of it and if anything there has actually been a trend nationally and globally that what (hoteliers) want are great top-end restaurants for top-end hotels. And we’ve also worked for boutique hotels. We’ve been down those avenues and also very, very large-scale operations. On the boutique end their move is to be anchored by a restaurant with a relative high-profile chef, sort of what Tom LaTour did with the Kimpton Group. (LaTour has left Kimpton and launched a boutique resort development firm). The idea is traffic, whether they’re guests or not. Hotels are not in the business of running restaurants. But we’re at 47% occupancy. Most of the restaurants are leased deals and it now is far more important for the owner-operator to build the brand of the restaurant against these low occupancies. All depends on the chef. Bistros are an amazing tool to draw people to hotels.

GlobeSt.com: Will you continue to reach out and expand investment capital and advisory roles for restaurants, and for food and beverage?

Bahreyni: We look into mergers and acquisitions nationally or globally of different brands and bringing them together. We’ll look at capital restructuring of different brands in needs of equity or debt, as well as assist in public offerings, which of course we’re very fond off. We’ll be a part of LRG’s full services in hospitality. All of LRG’s financial know-how will come into play at the restaurant as well as the hospitality end. We get a good synergy, and feel competent in taking any unit to the next level whether it’s an M&A or acquisition or debt part. It’s just great dynamics.

GlobeSt.com: Many seem surprised that the housing-market crash and credit crisis has spread to capital and debt for commercial, retail, office and now the hospitality sector. Experts were initially saying in Q4 2007 wrap ups and ’09 projections that top-tier hotels wouldn’t take a big hit, nor would upper-tier, limited-service, extended-stay products. Some are now changing their tune. Did you see it coming?

Bahreyni: Many people didn’t understand the ramifications of it. Corporate banks just don’t disappear (overnight), especially one of the most important (Bear Stearns). It wasn’t appreciated, there was so much bundled-up real estate that wasn’t sold, that there was so much involved. Now housing has taken its toll and oil has taken its toll. In our industry, travel is going to decrease because people don’t want to spend the money. And commodities have increased dramatically. If you look at things, wheat, pork, dairy products, cheese, they’ve just gone through the roof across the board. Restaurant operators are really scrambling to squeeze all they can out of their food costs. That has been such a challenge. Business travel has shrunk, meetings are downsizing dramatically, you’re looking at the credit crunch, you’re looking at a recession we’re in the middle of.There’s been an increase in foreign European tourism, but not enough to substantiate development. There’s one advantage: the dollar is less valued, of course. I guess that’s an advantage (because it’s attracting foreign capital to the hospitality sector). When you look at RevPar, its down considerably, and with 47% occupancy last year nationally, and the price of oil being what is, the local resident isn’t traveling. People are staying in their own backyards more than anything else right now. So big hotels are really getting hit particularly hard…Is it going to get better? I don’t see it turning around until the 1Q ’09.

GlobeSt.com: How can LRG help in the restaurant realm as they face narrowing margins, especially top restaurants in hotels?

Bahreyni: It has a lot to do with menu mix, and eventually you have to tweak your menu for higher margin items and moving away from certain high-cost items, and including items that could be an equivalent to it. I think (restaurants nationally) have increased their prices 2% or 3%. What’s going to get hit really hard is the really high-end where consumers must have a lot of discretionary income. Ruth’s Chris Q3 ’07 was down 62%. In Tuesday’s market (March 18), McDonald’s jumped up 55 cents, Burger King 39 cents. McDonald’s is having a beautiful five-year run and Burger King is trading around $99. That sort of tells you where we’re at.