Los Angeles real estate tycoon Severyn Ashkenazy may sell as much as 50% of his rapidly expanding network of luxury hotels to outside investors because the properties are delinquent on loans of more than $100 million.
Ashkenazy, in an interview, said he has had talks with several potential investors, including one large publicly held U.S. hotel company that he declined to identify. His goal, he said, is to raise between $20 million and $60 million by selling a large minority interest in his hotels, which include the L’Ermitage in Beverly Hills.
Ashkenazy said the new capital would be used in part “to alleviate the cash bind” plaguing the hotels, four of which opened last year in Beverly Hills and West Hollywood. Two more of Ashkenazy’s West Hollywood hotels are scheduled to open shortly.
Ashkenazy declined to rule out the possibility of seeking protection from his creditors in bankruptcy court, a tactic that one of his partnerships used successfully in the late 1970s when construction of L’Ermitage ran into problems. But, he added, “that’s not something I want to talk about.”
30 to 90 Days Behind Schedule
Ashkenazy said payment on the hotel loans, including $37 million owed Beverly Hills Savings, is 30 to 90 days behind schedule. More than $50 million of the delinquent loans are on Le Mondrian and Le Bel Age, two posh hotels in West Hollywood that opened last year and are still losing money, Ashkenazy said.
Ashkenazy’s comments confirm months of talk within the Los Angeles real estate industry about financial problems he has been having. Until recently, spokesmen for the 49-year-old businessman were either unavailable for comment or denied that he was having difficulty.
The Ashkenazy trademark is his small, luxury-suite hotels that have an elegant, European-style ambiance. Most of his new inns were converted from former apartment buildings, sometimes over the vehement protests of local residents.
Although his holdings are private, documents in Los Angeles County Superior Court reveal that Ashkenazy owns or controls nearly $140 million worth of property in Los Angeles, West Hollywood and Beverly Hills. He runs his operations through Ashkenazy Enterprises, a holding company that he owns with his older brother, Arnold.
Elegant, suave and fluent in several languages, the Polish-born Ashkenazy is an aristocratic figure in Los Angeles business circles. But he is also noted for a combative style that has led to continuing lawsuits over his business practices.
To date, Ashkenazy has weathered the turmoil, although he did sign an agreement in 1982 not to violate stock-ownership reporting requirements. The agreement--the end result of a Securities and Exchange Commission probe into his purchases of stock in two Los Angeles-area savings and loans--involved no admission of wrongdoing.
Ashkenazy attributed current financial difficulties to his rapid hotel expansion. Construction costs have been higher than expected and hotel revenues lower, he noted.
In addition, Ashkenazy said he has not been able sell interests in most of the new hotels because proposed changes in U.S. tax law have dampened investor enthusiasm for real estate limited partnerships.
Lenders Have Problems
What’s more, there have been financial problems at one of his two major lenders, Beverly Hills Savings, which was put into receivership in April by federal banking regulators. Although the S&L; has remained open, it has not been able to lend him the additional money that he needs, Ashkenazy said. Ashkenazy is a longtime business associate of Paul Amir, who became chief executive of Beverly Hills Savings in April, 1984.
The second major lender is Western Savings & Loan, a small S&L; in Salt Lake City and lead lender on most of the other delinquent loans, said Gary Nielsen, an executive vice president of Ashkenazy Enterprises.
Officials at Western Savings, as well as at Beverly Hills Savings, could not be reached for comment.
While Ashkenazy talked in general terms about his financial problems, he said he was reluctant to discuss specifics for fear of angering his lenders. He acknowledged some problems with other real estate holdings, largely apartment buildings, but he downplayed those difficulties.
“All the other properties, excluding the hotels, have loans that are either current or are being refinanced,” he said.
A detailed look at some of his problems comes from the Los Angeles County Superior Court, where records show that Ashkenazy has been battling two lenders over three delinquent loans.
S&L; Files Lawsuit
In one case, San Francisco-based First Nationwide Savings sued Ashkenazy and his brother in June after payments fell behind on a $2.5-million loan on a 78-unit apartment building in West Hollywood. First Nationwide, one of the nation’s largest savings and loans, succeeded in putting the property in receivership.
Ashkenazy came up with a $100,000 payment, but it was less than half the amount necessary to cure the default, court records show. The case is still pending.
Meanwhile, the receiver, Clayton Cook, noted in a statement that the “property is generally in a somewhat run-down or shabby condition, suggesting a lack of attention and expenditures on the part of the defendants.”
In another case, Glendale-based Sears Savings Bank sued Ashkenazy Enterprises twice in late May after the company fell behind on loans totaling more than $5 million.
One was a $2.4-million loan that Ashkenazy is using to convert an 82-unit West Hollywood apartment building into a hotel, to be known as Le Reve. The other is a $2.8-million loan on a now-vacant apartment building in West Los Angeles that Ashkenazy had sought to convert into condominiums but is now trying to sell, court records show.
Sears Savings succeeded in getting a receiver put in charge of the West Hollywood property, according to the lawsuit. But Ashkenazy then paid what he owed by borrowing additional money from Western Savings, which holds a second trust deed on the property.
The loan is now current, the receiver is gone and the hotel, Le Reve, will be opening soon, Ashkenazy says. A Sears Savings spokeswoman would say only that “in general, the payment performance of Mr. Ashkenazy is acceptable.”