Ritz-Carlton Hotel Owners Settle Half of Their Debt

Owners of the financially troubled Ritz-Carlton hotel in Laguna Niguel have settled about half their $8.9-million debt with contractors, with some creditors accepting as little as 75 cents on each dollar owed.

Over the past six weeks, the hotel’s owners and 50 of the 55 subcontractors of the Ritz-Carlton settled year-old debts totaling $4.5 million, said Charles Murphy, project engineer with Stolte Inc., the Los Angeles-based firm that served as general contractor.

The $100-million, 394-room luxury inn is 90% owned by New Jersey-based Prudential Insurance Co., and 10% owned by W.B. Johnson Properties Inc. Prudential purchased its stake in the hotel in late February. Subcontractors who have been paid have dropped their lawsuits against the hotel, Murphy said. Ritz-Carlton has maintained that it was overbilled in some cases.

But Stolte and five major subcontractors are still owed about $4.4 million and have lawsuits pending against the hotel’s owners. Stolte executives have scheduled meetings with Johnson Properties officials next week to try to iron out the remaining debt. “It’s been extremely frustrating,” Murphy said. “I’ve never seen a job with such a mountain of paper work.” When the paper work started overflowing from his office, he rented a trailer in Long Beach which he said is now half filled with Ritz-Carlton-related papers.

Officials from Johnson Properties declined to comment on the settlements Wednesday afternoon.

Francis W. Sullivan, president of Costa Mesa-based Sullivan Concrete Textures, said that last month his company settled for $27,500 of the $30,000 that was owed them. “I could have easily used up the rest ($2,500) in attorneys’ fees,” he said. To date, Sullivan said, he has spent $500 on attorneys’ fees.

Slow payments to contractors by developers is becoming more and more common in the industry, Sullivan said. “Many developers play games with subcontractors’ money,” he said.

Since January, Johnson Properties representatives have met five times with Stolte representatives. Over that period, three lists of subcontractors were drafted based on the size of debts owed. Contractors from the first two lists have all been paid. But the largest contractors, those on the third list, have yet to be paid, said Stolte’s Murphy.

Murphy says his company expects to lose thousands of dollars on lost interest and legal fees.