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Settlement talks heat up between Athenaeum, Rathskeller

June 20, 2012

The operator of the Rathskeller restaurant, which is locked in a dispute with landlord Athenaeum Foundation over revenue from the Biergarten, is willing to settle the disagreement by splitting the proceeds.

That would seem to comply with the wishes of the landlord, which wants Rathskeller operator Dan McMichael to pay it a portion of the cover charges he collects for concerts at the Biergarten in downtown Indianapolis to help close a $100,000-a-year revenue gap in the foundation's $850,000 annual budget. Foundation directors have given McMichael until July 1 to comply with their ultimatum or he’ll no longer be able to host concerts at the venue.

On Tuesday, McMichael said he presented the foundation with a settlement offer in which he has agreed to pay it 50 percent of the revenue generated from concert cover charges. The foundation is mulling the offer.

“It’s going to be pretty ugly if we have to shut this thing down for a period of time until we get this resolved,” said foundation president Cassie Stockamp. “But that’s not our goal or objective.”

The foundation also wants McMichael to foot the $250,000 cost of soundproofing the east wall of the Biergarten.

It’s unclear if the foundation will pursue a court claim that would force McMichael to pay it $1.4 million in cover charges the foundation says he collected from 2006 to the present.

“It’s just a tragedy of immense proportions that it’s come to this,” said McMichael’s attorney, Robert Bruner, of Tallahassee, Fla.

The dispute between the two sides stems from a letter McMichael received in March from the foundation demanding that he quit using the Rathskeller name because he is violating his lease by charging patrons a fee to enter the Biergarten.

McMichael has operated the Rathskeller since 1995. He said the $5 cover charge he instituted for Biergarten concerts in recent years didn't become an issue until recently. The current 15-yeart lease he signed in 2003 has an option for a 10-year extension. The Biergarten hosted 115 concerts in 2011.

After receiving the letter in March, McMichael filed suit in Marion Superior Court asking a judge to interpret the lease and decide whether he indeed is violating the terms of his lease.

The judge ordered the two sides to hash out their differences in mediation, which failed.

Earlier this month, the foundation countersued McMichael, seeking the $1.4 million in past cover charges and a ruling to stop him from using the Rathskeller name.

“The foundation is the owner of the trade name ‘Rathskeller,’ an exclusive Indiana service mark to which McMichael has no right, title or interest,” the foundation said in its claim.

McMichael followed the foundation’s countersuit by asking the judge to issue an injunction barring the foundation from enforcing its July 1 deadline.

If the two sides fail to reach an agreement and the Biergarten closes, Stockamp said the Rathskeller restaurant will remain open.

“We own the name and the liquor license,” she said. “So that’s not going away, whoever the operator is.”

McMichael said he generated more than $4 million in revenue last year from the Rathskeller and Biergarten, and paid the foundation $282,000 in rent.

His lease is unusual in the restaurant industry, said one commercial real estate broker, in that he pays the foundation a percentage of his sales rather than by the more common way of paying based on square footage.

The lease calls for McMichael to pay the foundation 6.9 percent of his annual sales, according to the lease filed in court papers.

Steve Delaney, a principal at Sitehawk Retail Real Estate in Indianapolis, said most restaurant deals are tied to base rents. But McMichael’s terms are in the range of what Delaney has seen in the few leases he’s been involved with that were based on sales.

“Base rent is the driving factor in 95 percent of restaurant deals,” Delaney said. “To see one [based on] pure percentage is pretty unusual.”

The Athenaeum, 401 E. Michigan St., also houses a YMCA and other tenants in the 94,000-square-foot structure built in 1894 to serve German immigrants. The building needs $6 million in upgrades, Stockamp said.

“It’s not about us being greedy,” she said of her dispute with McMichael. “It’s about us trying to find a very sustainable business model.”

McMichael has launched an online petition to support his cause that had netted more than 5,880 electronic signatures as of Wednesday morning.

“It was an absolute dump when I came here,” said McMichael, noting that he invested $215,000 of his own money in the restaurant. “I’ve tried to treat this place like I own it myself.”
 

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