Schostak chain bids $10.98M to win auction for buying Olga’s Kitchen out of bankruptcy
An affiliate of Team Schostak Family Restaurants won the Friday auction to buy bankrupt Olga’s Kitchen Inc., the Troy-based restaurant chain known for its signature gyro sandwich and bread named after its founder.
SOK Venture LLC, an affiliate of the Livonia-based company that owns 65 Applebee’s, four Del Taco and two MOD Pizza outlets, bid about $10.98 million for Olga’s more than 25 restaurants. It bested Cosmo Hospitality LLC, a Troy-based firm that pledged $8.55 million, according to a court filing.
“TEAM Schostak Family Restaurants is pleased to have won the auction to acquire Olga's Kitchen and looks forward to leading Olga’s to a brighter future,” said Mark Schostak, executive chairman of TEAM Schostak Family Restaurants, in a statement.
The sale, which still requires approval Monday by a federal bankruptcy judge, was welcomed late Friday by Olga’s chief restructuring officer Gene Kohut.
“We’re pleased with the results of the auction and are excited to see what is in store for Olga’s as it exits bankruptcy,” said Kohut, who confirmed the winning auction price.
Team Schostak didn’t indicate Friday what its plans are for the Olga’s chain. But Kohut expects improvements.
“I think it’s likely they will enhance some of the locations and make some cosmetic changes,” he said.
Team Schostak is familiar with Olga’s Kitchen because in 2004 it struck a deal with Olga’s to jointly operate 11 Olga’s restaurants. The Schostak family also owned 60 Burger King franchises before selling them in July as part of a diversification strategy, according to the firm’s website.
The proposed sale comes five months after Olga’s Kitchen filed for bankruptcy reorganization protection. The company owed at least $4.48 million in unpaid loans and credit while having between $1 million and $10 million in assets.
At its height in the 1980s, there were 56 Olga’s restaurants in 11 states, as far away as Texas, Oklahoma, California and Maryland. But by 1997, the company’s sluggish sales forced the closure of many out-of-state stores and the remodeling of many locations at home.
In the wake of the 2008-09 recession, Olga’s struggled to adjust to the changing restaurant market where the fast-casual approach gained popularity. The chain diversified its menu, offering more sophisticated sandwiches and salads, and additional appetizers like bruschetta, sweet potato fries and hummus.
In 2011, the chain created a fast-casual outlet on Woodward Avenue in Royal Oak, where patrons could get in and out quicker but still can find seating if they want to linger and enjoy their meals in a restaurant setting.
The chain added a fast-casual restaurant in downtown Detroit, but didn’t expand the concept much further. The Detroit outlet was closed in September as the chain cut costs in bankruptcy.
Among Olga's Kitchen's largest unsecured creditors were RBS Citizens in Detroit at $2.4 million and Commerce Township-based food service supplier Sysco at $1.2 million. A $300,000 payment to Sysco was part of the bidding prices, according to court filings.
In October 2014, Olga’s said it had more than 1,000 employees working at 33 restaurants, including 30 in Michigan, one in Ohio and two in Illinois. It even made available founder Olga Loizon, who opened a tiny shop in 1970 in Birmingham with her son before selling the restaurant concept a year later to a group of investors.
The chain presented itself as doing well even as bills went unpaid. The company filed for bankruptcy protection in June, a move that led to putting it up for sale.
SOK Venture kicked off the process with a $8.3 million bid before the auction as a way of testing the market.
After Cosmo Hospital increased the price by $200,000 to $8.55 million, the Team Schostak affiliate sweetened the pot by $2.4 million — $10.95 million plus a still fluctuating payment of $305,000 for creditor Sysco’s food inventory, Kohut said.
If a bankruptcy judge signs off Monday, the deal would close by Dec. 11 at the latest, but Olga’s will “work very aggressively” to complete the sale much sooner, he said.
If successful, the diversifying Team Schostak will own an Olga’s chain that sits between the fast-food outlets of Del Taco and the more traditional sit-down eateries of Applebee’s.