New Restaurant Due Soon at Capistrano Depot : Food: Leaseholder will be the third trying to turn a profit since city bought the landmark in 1986.

Last fall, city officials proudly threw a 100th birthday party for the downtown train depot, a daily departure point for hundreds of commuters. But the event could have just as easily been a funeral for the depot’s star-crossed restaurant.

The Rio Grande Bar & Grill, which folded last week, was the second restaurant to fail since the city bought the landmark for $1.1 million in 1986.

But city officials now trust that a new investment group has the right culinary touch.

The City Council last week approved a change in tenants effective February, and forgave the current operators $25,000 in past due rent. The lease transfer also calls for $100,000 reimbursement to the new investors for any building improvements.

City Councilwoman Collene Campbell said the move was in the best interest of the depot and “good food,” but some critics of the deal say the city should sell the property and stay out of the real estate business.

“The thing is: How many times do you bail somebody out?” City Councilman Wyatt T. Hart said after the council voted 3 to 1 Tuesday to assign the lease to Rancho Capistrano Limited Partnership, a local investment group. Hart cast the lone dissenting vote, with City Councilman Gil Jones abstaining because of a potential conflict of interest.

Hart said that the new lease terms amounted to a city subsidy other eateries in town can’t get. He said he wants the city to stick to basics, such as police, fire, parks and other traditional services.

A handful of nearby restaurant owners agree.

“As a taxpayer; I’m upset with the way the city is handling our money,” said Sigmund Hau, who with his wife Elisabeth owns Cafe Mozart in the Mercado Village on Camino Capistrano.

“That’s my tax dollars that are going into that thing,” said Al Whelchel, whose Cafe Capistrano in the El Peon Complex is set to close temporarily today for renovations. The city sold that complex last year.

Joe Campbell, one of the general partners with the new investment group (and no relation to the city councilwoman), said the lease transfer is not a “sweet deal.”

Campbell, who has a local Ruby’s Diner franchise, said landlords usually pay for improvements up front, not reimburse for them. And the other terms are no better than the current leaseholder has, he said.

“It’s got huge potential,” Campbell said of the depot. “It’s a roll of the dice. It’s a business venture. If it works out, it’s good for the city and us.”

He said the restaurant will feature Rancho California-style seafood, steaks and Mexican fare. Campbell theorized that the Rio Grande failed at least partly because its disjointed layout was confusing and uninviting. He plans to remodel the space to make a more cohesive restaurant seating plan, with a separate retail area, he said.

Under the terms of the lease transfer, the investment group will pay 6% of its gross receipts to the city, with a guarantee of at least $3,500 a month. The overhead will be offset by about $1,800 in monthly rent paid by Amtrak to the leaseholder, Campbell said.

The city expects to receive about $8,000 a month from the business, according to Cassandra Walker, the city’s community development manager. But city officials projected a similar scenario when Trackside Dining Inc., operators of the Rio Grande Bar & Grill, signed on in November, 1989. When it did forward rent in the last two years, Trackside paid the city only the minimum $3,500 a month.

Before Trackside Dining ran the depot restaurant, two brothers had the operation. When the city bought the depot, that business also was failing, city officials said.

Whether the new group can succeed, Henderson said, is “a legitimate question. It isn’t the city’s fault, exactly, that it hasn’t been a success.”