In this video l’Auberge owner Josef Reif talks about bank loans.

l’Auberge owner blames default on competition, recession

‘You cannot live off the elite alone,’ Josef Reif says

For Josef Reif, the failure of his celebrated l’Auberge restaurant last year after more than three decades in business in Kettering is about more than red ink and personal bankruptcy.

“It’s ripping your heart out, ripping your soul out. You don’t know where to turn and you are in an age group where really to start all over again is not possible,” said Reif, 65, of Centerville. “It’s been the hardest year in my life to find satisfaction in any slight way.”

Reif defaulted on $1.5 million in mortgage loans from LCNB National Bank of Lebanon and a $35,000 U.S. Small Business Administration loan from the same bank. He lost a judgment in Montgomery County Common Pleas court in 2011 and watched the former four-star restaurant turned over to the bank and sold.

SEE other local businesses with bad SBA 7(a) loans >>

Reif, who founded the restaurant with chef Dieter Krug in 1979, said his financial troubles began when he refinanced his mortgage in 2006 to pay Krug his share when the chef retired. Reif also blames increased competition from restaurants at The Greene, the loss of big-spending corporate customers when NCR and Mead left town or downsized, and most of all the Great Recession.

“You cannot live off the elite alone,” said Reif, who bemoans the arrival of high-end restaurant chains that he said poached his customers.

Last year he completed Chapter 7 bankruptcy, and although he retains his home in Centerville, Reif said the bankruptcy “stripped me of everything I had.”

LCNB approved the SBA loan in September 2009 when Reif’s business was already struggling, and he said he used the money to help cover his mortgage debt.

Nine months later the bank sued Reif for the unpaid mortgage and the SBA loan. The SBA had already paid the interest on the loan to the bank and when Reif failed to repay the principal, SBA paid LCNB $35,000 to cover the federal guarantee on the loan.

LCNB President Steve Foster said he could not comment on the specifics of the loan. But Chief Lending Officer Matt Layer spoke generally about the type of SBA loan Reif obtained. It was an America’s Recovery Capital loan, part of nearly $1.5 billion allocated to SBA as part of the federal stimulus program to jump-start lending in the wake of the 2008 financial collapse.

“The whole premise of that program is the whole United States was going through some pretty tough times and it was meant to stabilize the small businesses that were having a tough time,” said Layer, noting that of the four ARC loans LCNB awarded, only l’Auberge failed.

SBA Spokeswoman Emily Cain said that prior to loan approval the agency would have reviewed the l’Auberge loan because LCNB is not a preferred lender with automatic approval privileges. She said the loan was charged off on Sept. 9, 2011, to the U.S. Treasury, which was able to collect all but $18,745. Treasury halts collection efforts when a bankruptcy is filed.

Cain said the America’s Recovery Capital loan program — in place from February to September 2009 — was designed to help troubled businesses get some breathing room and hopefully survive. It could be used to pay debt like a mortgage, even to the lender who approved the SBA loan, as long as the loan was “designed to promote the borrower’s long-term viability.” SBA would have known Reif’s plans for the money before it was approved, she said.

Reif said he always thought he’d be able to pull through, even when customers did not return as usual in April 2010 after the slow winter months. “If somebody would have told me that this would happen I would say absolute no way,” said Reif. “I thought I was bullet proof.”

Sitting at a table in his home, Reif flipped through photographs of the l’Auberge heyday when presidents and other celebrities stopped by. “A lot of my ex-employees still call and say ‘boss, when are you ready to go again, we are waiting for you,’” said Reif. “That’s the old song. It always takes the green stuff.”

Reif knows it will be a challenge to find the “green stuff” to finance a new venture.

“Hopefully I get lucky and find a second chance to continue,” he said. “I’m still looking around trying to find a little spot for a bistro with a nice bar to continue the tradition.”

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