Both the owners and operators of the U.S. Grant Hotel, concerned about low occupancy and red ink that will exceed $6 million this year, are searching for a company to take over management of the fabled facility from San Diego's Atlas Hotels by the end of the year.
Three hotel chains last week talked with representatives of U.S. Grant Hotel general partner Sybedon Corp. of New York about assuming operation of the 283-room, 76-year-old Broadway hotel. The three prospective operators are Four Seasons, Westin and Aircoa, which operates the Clarion hotel chain.
Atlas Hotels is not being forced out, and a series of meetings last week with the potential managers were "at our request," Atlas President Robert Richards said Monday.
The longtime San Diego-based hotel company would like to get out of the Grant arrangement because "we don't want to handle the continuing losses, (which are) much greater than we thought they'd be," Richards said.
Losses this year will probably reach $6 million, according to a Grant source, and red ink next year is projected at $2.3 million.
The consensus of the Grant's owners is that, although Atlas Hotels is successful at running middle-of-the-line lodging, it falls short in marketing luxury properties such as the Grant.
"Atlas isn't upscale enough," said one Grant source who quickly added, however, "Had we had the convention center, it would have been an entirely different situation."
Richards countered that "nobody can make money out of that hotel." Room rates must average $150 per night for it to be profitable--far shy of this year's $110 nightly average room rate, Richards said.
"It's not just us; it's anybody," he said. "San Diego isn't a high-room-rated city like New York or Chicago or San Francisco."
Meanwhile, all sides are "trying to see that the reins of control get changed from one hand to another without everybody getting upset at everybody else," said one source familiar with the negotiations with the prospective hotel managers.
Under a worst-case scenario, Atlas could not be forced out as operator unless it defaults on its rent payments, hotel and real estate industry sources said.
However, by year's end, a $5-million line of credit to secure rent payments put up by Atlas and Grant developer Kit Sickels, who is a one-third partner in the Grant management firm, will run out, according to sources familiar with the hotel.
Atlas Hotels' operating agreement reportedly calls for its management firm--Ulysses Management Co.--to receive 3% of the Grant's gross income and an incentive fee of 3% of gross operating profit, according to one source familiar with the arrangement.
The fees, however, are subordinated to the rent payment, "which means Atlas (and Sickels) haven't gotten any money yet," the source said.
"There can't be anything in it for Atlas at this point, other than the prestige of running the Grant," said one hotel industry source. "Having a nationwide reservation system, like Four Seasons and Westin have, would certainly help generate more business."
Mitchell Davis, senior vice president of Sybedon, confirmed that he was in San Diego last week but would not comment on any potential changes in the hotel's management.
Since it opened in December amid much pomp and circumstance and after an $80-million four-year renovation, the Grant has had relatively low occupancy. In the first four months, occupancy was less than 40%, creeping to less than 50% in September and increasing to about 75% this month, according to one hotel source.
Occupancy at San Diego area hotels this year has averaged 75.9% through August, according to the Convention & Visitors Bureau.
Grant officials had expected at least three years of losses, but they have been surprised at the size of the loss.
Sybedon Corp. and Prudential-Bache, the ownership venture's joint partner, headed a 400-member limited partnership that bought the block-square property that houses the Grant from Sickels in late 1984. The limited partnership offering raised $30 million.
Meanwhile, Coldwell Banker is up and running in its effort to lease 14,000 square feet of retail and office space that fronts the Grant.
A two-story glass-enclosed structure on C Street has sat empty since the Grant opened while Sickels Group officials decided whether to tear it down in favor of a high-rise office and retail building.
The high-rise tower idea has been abandoned, according to Coldwell Banker, and agents started leasing space last month.