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Flying Star Owners Return to Earth

Flying Star Owners Return to Earth

Jean Bernstein and her husband Marc are taking big steps to keep their 35-year-old business going

Jean Bernstein Opens Up About the Company’s Bankruptcy and Moving Forward

When business people see themselves in their mind’s eye, they see daring and shrewd decision makers with near-perfect timing. No one in business likes to see themselves as the opposite.

But Jean Bernstein, owner of the Flying Star restaurants with her husband, Marc, has come to the painful realization that she falls into the latter category.

“We’re a poster child for what not to do in a bad economy,” she said as she recounted her’s and Mark’s two-year effort to keep ownership of Flying Star. With a vote of creditors a few days ago, the Bernsteins emerged from $6 million bankruptcy still in control of the company.

Jean offered advice to other entrepreneurs – advice she wishes she had followed. “You have to keep an eye on the local economy, understand macro trends, don’t sign long-term leases and don’t expand beyond what you think you can handle,” she said.

The Flying Star, along with other icons such as Scalo Northern Italian Grill, Il Vicino, Kelly’s Brew Pub and the Monte Vista Fire station, have served as anchors that helped make the Nob Hill retail district a destination.

In a way, the Flying Star’s troubles starting in 2008 mirror those of Nob Hill itself.

Bernstein and other Albuquerque business people could not have predicted the 2008 recession that struck the Albuquerque metro area. Nor could they have predicted that Intel Corp. would dramatically downsize its Rio Rancho plant or that in October 2013, the U.S. government would shut down.

But all of those things, Bernstein said, led to the bankruptcy filing in January 2015. It also forced the company to close three of its nine restaurants.

“Intel was going from 5,000 employees and 2,000 contractors to 1,500 people and a couple of hundred contractors,” Bernstein said. “We were doing OK until the end of 2013, and then the government shut down. It was a fantastic year in 2013 until October 7, [the government shut down] and then, all of a sudden, everything just halted and slowed down. We could not believe what happened.”

The recession, problems in Santa Fe where the Bernsteins had opened a restaurant, a bank failure in Albuquerque and the hollowing out of Albuquerque’s Downtown left the Bernsteins no choice but to declare bankruptcy, she said.

“Flying Star – Santa Fe [which opened in 2008] was plagued with difficulties from the start,” said one of the company’s bankruptcy court documents. “Due to the recession, the Santa Fe economy was very slow, resulting in hundreds of small businesses closing. Real estate prices had crashed. Tourism seems to have evaporated. As a result, Flying Star – Santa Fe never fully took off.”

 

Multiple troubles

A woman talking with a man over a counterThe Santa Fe restaurant was located in the Santa Fe Railyard, where a promised movie theater that would have drawn customers “was not developed for six years,” the court document said.

“Flying Star – Santa Fe’s sales were never sufficient to cover its expenses and the cafe’s operating costs had to be paid for by other Flying Star cafes,” the court document said.

Then came the failure in 2010 of Charter Bank.

The Bernsteins had a construction loan with Charter to build a 19,000-square-foot strip mall in Bernalillo, about half of which was occupied by a Flying Star restaurant. But Charter Bank failed and was sold by the Federal Deposit Insurance Corp. to Beal Financial Corp. of Plano, Texas. Beal refused to convert the construction loan into a permanent loan, and the Bernsteins eventually had to close that restaurant and sell the mall to pay off the loan, Bernstein said. The former Bernalillo Flying Star is now the Freight House Kitchen + Tap, a bar and restaurant.

Then there was the flight of businesses from Downtown Albuquerque.

“Flying Star – Downtown [at Seventh and Silver] was reeling from the loss of daytime business population in Downtown,” the Bernsteins’ court document said. The once-profitable location began to lose money at an alarming rate. “At the end of 2013, Flying Star and companies found themselves with three locations and a production facility operating deeply in the negative,” the Flying Star court documents said.

 

Poor managers?

While Bernstein blamed the bankruptcy on the recession, Flying Star’s creditors argued in a court document filed in August that the owners “abused” and “mismanaged” the chain and that, ultimately, they were responsible for its financial problems.

The creditors said the Bernsteins charged Flying Star excessive rent at properties they owned under a different business, took $567,000 in salaries and benefits from Flying Star in the year before the bankruptcy filing, and allowed their other company, Satellite Coffee, to get into $1.7 million in debt to Flying Star.

“As with so many bankrupt companies, the principals need look no farther than their own mirror to see the cause of the failure of the company,” the creditors’ court filing said.

Bernstein said the allegations of mismanagement were those of the creditors’ attorney, Paul Fish, and not the creditors themselves.

“Do not confuse the creditors with the creditors’ attorney. He never even spoke with hardly anyone at all,” Bernstein said. “Ninety-five percent of our creditors are still the vendors we use today. We treated them well, and they too were hurting from the economy.”

Fish did not return a phone call from ABQ Free Press Weekly.

 

What’s next?

With approval by the creditors of the Bernsteins’ plan to pay them back $3.2 million – or about 65 percent of the value of their total claims – Jean and Marc Bernstein will continue to run the company they started in 1981. The two will work to find more and out-of-state business for the 20,000-square-foot bakery and food distribution center they opened in 2006 to supply Flying Star outlets with food.

“We are slowly piecing together a nice wholesale bakery company, and I would say that we need to diversify and expand into other, or more robust, markets,” Bernstein said. “Let’s face it, this [Albuquerque] is not a robust market.”

While another company, the holding company that owns Garduño’s and Keva Juice, had bid to take over the Flying Star business, at least two local business people are glad the Bernsteins are staying on.

“I think that strong, local operators give a different flavor than what you get with a chain operation,” said Steve Paternoster, owner of Scalo Northern Italian Grill in Nob Hill. “Their store is just a block down from mine, and you see anybody and everybody there. They have an incredible influence on this part of town.”

Steve Schroeder, owner of the Nob Hill Music record store across Central Avenue from the Nob Hill restaurant, said his store often gets customers from Flying Star. “People are eating, and they look across the street and see us, and they come in here,” Schroeder said. “It [Flying Star] is an icon in the neighborhood, and it’s good to keep some of the icons.”

 

Looking back

While Bernstein said she and Marc should not have attempted to expand the business as rapidly as they did, they really didn’t know Albuquerque was headed for such a lingering economic malaise that has dragged on past the national recession’s end.

“We had lived in Albuquerque since 1971, and we had seen Albuquerque slowly, but surely, expand,” Bernstein said. “It seemed like the market was moderately good, people were moving here, and we felt like Albuquerque was on a good, solid footing”

And while the bankruptcy case took longer and cost more than Bernstein ever expected, she said there was never a doubt in her mind that she and Mark would hang onto the business.

“Not one second did I ever believe that we would lose this business,” she said. “Because customers and employees expressed such incredible faith in us, we never had any reason to be depressed.”

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Dennis Domrzalski is managing editor of ABQ Free Press. Reach him at dennis@freeabq.com.

Latest posts by Dennis Domrzalski (see all)

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  • Manny
    December 14, 2016, 5:09 pm

    Looks like Hells Kitchens are making a comeback.

    REPLY
The following two tabs change content below.
Dennis Domrzalski is managing editor of ABQ Free Press. Reach him at dennis@freeabq.com.

Latest posts by Dennis Domrzalski (see all)