Federal regulators, owed more than $30 million in defaulted construction loans and back interest, will take over the embattled Radisson Hotel in Mission Valley, a bankruptcy judge ruled Monday.
The ruling by U.S. Bankruptcy Judge James Meyers appears to end a nine-month battle by Radisson developer Carroll Davis to regain control of his posh Mission Valley hotel and reorganize his San Diego Diversified Properties, which has been in Chapter 11 reorganization bankruptcy since August.
Meyers on Monday said he had "no alternative" but to approve a motion by representatives of the Federal Savings & Loan Insurance Corp. (FSLIC) to allow the regulators to seize control of the Radisson.
FSLIC officials said that a formal foreclosure--which was narrowly averted last summer by Davis' bankruptcy filing--will probably occur in the next 30 to 60 days.
Meyers said that the hotel--which he said had a fair market value of between $22.6 million and $26 million--could not afford to pay the monthly interest charges on the defaulted construction loans now under FSLIC's control.
FSLIC took over the construction loans when it seized failed San Marino Savings & Loan in 1984.
FSLIC is now owed about $30.4 million in principal and interest, and interest is accumulating at the rate of $584,000 per month. FSLIC will likely take over the hotel at foreclosure then attempt to sell it to an outside party, officials said.
Radisson bankruptcy trustee C. Hugh Friedman as well as attorneys representing Davis had argued in a two-day hearing last month that the hotel and a financial partner of Davis' could guarantee FSLIC "adequate protection" on their investment with a $140,000 monthly payment.
'Beyond the Capacity'
Meyers said Monday, however, that the proposed payment would not provide protection for FSLIC.
The amount "is just not enough to satisfy the requirements of the U.S. Bankruptcy Code," Meyers said. The minimum monthly payment should be $243,750, which is "beyond the capacity of the hotel," Meyers said.
The hotel would also have to pay a lump sum $1-million payment to FSLIC to cover the interest accumulated since November, when last summer's planned foreclosure would have taken effect, Meyers said.
In addition, the hotel would have to "show some ability to pay" about $3.4 million in added value that otherwise would be lost if a planned second Radisson tower isn't completed by January, Meyers said.
A disappointed Davis said after the hearing that he "wasn't sure what the next step will be."
Attorney Walt Taylor, representing Davis, said there are "several different kinds of appeal processes" available, but he declined to identify them.
Davis said he has been "diligently working" on a reorganization plan to pay off FSLIC and finance construction of a twin 13-story addition to the 264-room Radisson.