15 Sep 2014
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Phil’s Diner Closes After Less Than 8 Months

The owners believe nearby construction inhibited business and the developer gave them an unfavorable deal.

Phil’s Diner Closes After Less Than 8 Months Phil’s Diner Closes After Less Than 8 Months Phil’s Diner Closes After Less Than 8 Months Phil’s Diner Closes After Less Than 8 Months Phil’s Diner Closes After Less Than 8 Months

closed its doors last Sunday, less than eight months from its opening in April and within two weeks of the in the adjacent building. How did Malissa and Casey Hallenbeck -- a couple full of vision and tenacity -- reach their breaking point so quickly?

As it turns out, it didn’t happen so quickly. Many years of effort preceded their grand opening. Casey had : the restoration of a beloved historic diner. When he met his wife Malissa four years ago, they pooled their expertise. She has an MBA in Sustainable Management and he has 30 years of experience working as a motion picture set decorator. They set up a business plan for bringing a mix of healthy, locally grown food and traditional diner fare to their community.

Since opening day, they say they’ve accrued a wealth of hindsight, along with substantial debt, and are on the brink of personal bankruptcy and foreclosure on their home.

This extraordinarily resilient duo was somehow able to laugh at the absurd number of catastrophes they have faced. Perhaps the “first fire” should have been a warning (they had one recently as well). It happened days before their grand opening.  

The chef they’d paid and trained for six weeks set the fire but denied responsibility, Casey said. In reviewing surveillance tape, the couple watched as the chef left three frying pans unattended. When the pans caught fire, another employee grabbed each pan and threw the contents outside — leaving grease splashed everywhere. The diner could have easily burned down before it opened, which “probably would have been a blessing,” Malissa joked.

The couple cited several factors that contributed to their inability to keep the diner open.

Casey bought Phil’s, which is believed to be the oldest dining car in California, in 1998. Construction on the meant the diner had to relocate. So the city’s Community Redevelopment Agency (CRA) offered Casey a deal, promising to relocate the diner to a spot in the planned NoHo Commons.

It took 10 years for the CRA to find him the land.

“At the height of the recession, the CRA asked Casey to develop a business plan for the diner so they could allocate funding, cautioning us that any delay on our part would threaten the funds to move forward,” Malissa said. 

As for the reason it took 10 years, CRA Spokesman David Bloom said a project of the scope of the NoHo Commons takes a great deal of time. The entire project cost $287 million and includes housing, entertainment and retail. Such a project means the agency is charged with “creating housing so you would have density of people to go to the diner,” Bloom said.

The CRA promised $475,000 of the $1,025,000 needed for the project to move forward, Malissa said. After filing 20 loan applications they found financing with the University of Southern California’s Credit Union. However, they reached a major deadlock when the CRA wouldn’t release funding until the bank put up the money. Meanwhile the bank considered the CRA funds as collateral.

“Neither party wanted to fund first,” Malissa said.

The couple had signed a land lease with JH Snyder Company, which has developed the NoHo Commons. CRA had given ownership of the land to Snyder in order for them to develop the project. Snyder offered to alleviate the stalemate by fronting the first step of funding with stipulations, Malissa said. 

Snyder required something in return for this favor. The couple had to give the developer full ownership of the diner. In addition, the Hallenbecks said they had to pay the construction costs. Those costs included $70,000 to repair the diner after the crane that moved it crushed the sides of the building. The crane operator was hired by Snyder without a contract, so the couple could not collect damages.

In addition, the couple said Snyder made a $60,000 mistake on the plumbing estimate. Malissa said Snyder told the couple that they would have to pay the bill because the developer “no longer had the funds to front the cost of the construction.”

Casey describes the deal with the developer as being “one-sided, in Snyder’s favor.”

Another example of the developer’s favorable position was what the couple considered an ultimatum from Snyder to move forward quickly, and before the start of the construction of the Laemmle Theaters. Casey described Snyder’s message as “you better build before the theater because it will cost more and you will lose your funds.”

The upshot of opening before the theater? Months of construction on the Laemmle were a “complete deterrent” to customers, Casey said. The already limited parking in the area was reduced even further by the closure of the sidewalk on Lankershim Boulevard and a decrease in street parking. In addition, potential customers saw the construction all around the diner, including workers carrying building materials. Those would-be diners assumed Phil’s was still being built and that it wasn’t open, Casey said.

A spokesperson from Snyder was not available for comment.

The couple is quick to cite the things they wish they’d known going in. They realize they missed a shot at leveraging their own power with Snyder early in the game, and might have been able to delay construction on the diner so they could open along with the Laemmle. They also could have moved the diner to a different location, unhampered by the offer of financing from CRA. Sadly, they say they learned far too much about receiving bad advice from lawyers. But that’s all hindsight.

Perhaps now the couple will get some reprieve from the brutal schedule under which they’ve operated for the past 10 months. Malissa worked nearly 13 hour days. Casey continued working in the movie industry, but every free moment was spent at the diner. They have a 10-month-old granddaughter, Lila, and Friday night was the first time Malissa had been able to babysit her newest family member.

Their wish for the diner? That someone will come in and want to take it over. They say its turnkey ready, the Laemmle Theater opens Tuesday, and they’ve already invested years of hard labor into the project, on which a new business owner can profit.

They hope for a new owner for two reasons. First, they stand to at least recoup a small amount of their investment by sub-leasing the property to a new owner. Second, their vision was always to bring a wonderful, historic diner back into operation and serving their local community.

The CRA shares their hope.

“It’s unfortunate they weren’t able to make a go of it after opening,” Bloom said. “We certainly are deeply aware of the cultural and historical significance of the diner in North Hollywood. We are hopeful that JH Snyder will be able to find another owner operator quickly so that Phil’s Diner can resume business in North Hollywood.”

The Hallenbecks consider themselves members of the legion of people who accepted financial deals and did not have a clear sense of the bargain made.

“We take total responsibility, having learned a major lesson that is affecting our country greatly today,” Malissa said.

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