A lender who took ownership of Velleggia's Italian Seafood Restaurant on Wednesday said he believes he will find potential buyers, even in a stalled economy, to revive the well-known restaurant, a longtime landmark in Baltimore's Little Italy neighborhood.

The restaurant, which closed in October, failed to sell at a foreclosure auction Wednesday and was taken back by co-lenders, Dominion Financial Services and USIC, for $1.2 million.

The auction was ordered by a bankruptcy court trustee as part of the Chapter 11 filing of Velleggia's owner of three years, Terry Lee Coffman II. Coffman filed for bankruptcy protection in May 2008. Coffman had purchased the restaurant at 204 S. High St. in November 2005 for $1.8 million from the Velleggia family, which opened the restaurant in 1937.

Wednesday's auction by Alex Cooper Auctioneers Inc. drew several dozen spectators, including local residents and business people, but no bidders. They gathered in the restaurant's atrium-style bar and lounge as Fred J. Lewis, a principal with Dominion, made an opening bid of $1.2 million.

Afterward, Lewis said he had not expected an on-the-spot sale, and said the lender was gearing up to heavily market the property. Already, he has had some interest, he said.

"Most people have to obtain financing, and get with partners," he said. "It's a great opportunity at a prominent location."

Donald Friedman, president of Service Solutions Business Advisors, a consultant whose clients include restaurateurs, said the shuttered Velleggia's offers an opportunity for the right kind of business.

"Little Italy is fertile ground for business opportunities," he said. "They have established a strong legacy of success in the area."

He said it would be a difficult time for a high-end restaurant to make a go of it but envisioned the site working for a more value-oriented eatery.

Restaurants have struggled in the recession, and some have been unable to keep up with lease payments as business has fallen off, said Paul Hartgen, president of the Restaurant Association of Maryland. In Baltimore, restaurant sales have fallen $6 million in the first quarter, he said. The city had an annual $915 million in restaurant sales in all of 2008, he said.

But the market is creating opportunities for other operators who are looking to expand, he said.

Little Italy restaurants have had to contend with competition from newer restaurants in Harbor East and new Italian restaurants elsewhere, but the number of restaurants still has grown over the past five years. Besides Velleggia's, only two of the older restaurants, Luigi Petti's and Boccaccio, have closed, and several new restaurants have opened. Most of the others have been in business for five years or more.

Velleggia's was started in 1937 by Enrico and Maria Velleggia, who served homemade Northern Italian meals. It last expanded in the early 1980s.

The Velleggias' sons, Frank and Naz, and their children operated the restaurant until Coffman bought it in 2005. At that point, it was the oldest family-owned restaurant of some 20 independent eateries tucked into four square blocks of Little Italy.

Naz Velleggia came to Wednesday's auction to see what might become of his family's former business.

"It's a beautiful piece of property, and there are a lot of fond memories," he said.

His family no longer has a connection to the restaurant, but continues to run the Casa di Pasta on Albemarle Street.

One spectator at Wednesday's auction was Terry Coffman Sr., the father of Velleggia's owner Terry Coffman II, who had helped his son manage the restaurant since the purchase in 2005. Coffman Sr. said business had been good, but that it became too difficult in the poor economy to get financing at favorable terms.

Since the closing of Velleggia's in Little Italy, Coffman Sr. and his wife have opened a new restaurant, Velleggia's Inner Harbor, on Water Street in the former Water Street Exchange space. Much of the business comes from the growing number of hotel rooms in the area, Coffman Sr. said.

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