Inter-Continental : Hotel’s 2 Lenders Balk at Demand for Debt Restructuring
Hotel Inter-Continental lenders are balking at developer Doug Manchester’s demands that they restructure more than $218 million in loans as a condition of Marriott Corp.’s taking over as operator of the financially troubled 681-room hotel.
Consistent with his reputation as a “hardball” negotiator, Manchester has threatened to take the harborside property into bankruptcy proceedings if lenders Home Savings of America of Los Angeles and Beverly Hills Savings & Loan of Mission Viejo do not accede to his demands, sources close to the negotiations say.
Word of Manchester’s proposal came amid signs that the preliminary agreement announced last month by which Marriott would replace Inter-Continental as operator could be in jeopardy. A spokeswoman for Inter-Continental in San Diego said Wednesday that Inter-Continental’s agreement to turn the hotel over to Marriott “no longer is valid.”
“Inter-Continental will continue to manage the hotel,” spokeswoman Susan Thomas said. “The time limit (on the preliminary agreement) has expired. From our standpoint, we have a management contract, and we are not renegotiating that contract.”
The change in hotel operators is subject to approval by both hotel companies, the lenders and the San Diego port district which leases the hotel land.
Last month the hotel developer Pacific Landmark Hotel Ltd., a firm controlled by Manchester, said Marriott had made a preliminary agreement to take over management of the existing hotel tower, plus the adjacent 683-room hotel structure now under construction and due to open in December. The hotel towers are located next to the San Diego Convention Center due to open in 1989.
And Manchester said last month that the hotel, open since 1984, was losing money because of high debt-service costs and the two-year delay in the completion of the convention center, a delay that cost the hotel significant revenues.
In an interview Wednesday during which he refused to comment directly on his reported bankruptcy threat, Manchester said the demand that the hotel’s debt be restructured was put forth by Marriott as a condition of its planned investment of $20 million in the property.
About $4 million of Marriott’s investment is earmarked for payment to Inter-Continental to compensate it for quitting the hotel, Manchester aide Kipland Howard said Wednesday.
“We have mentioned all along that the project is in serious difficulties and needs an infusion of cash and debt restructuring to take place,” Manchester said Wednesday.
“If that were not to take place, we would be looking at all aspects of how to handle the situation.”
Howard said Manchester has asked Home Savings of America to reduce the interest rate on its $208-million first mortgage on the hotel. Home Savings executives did not return telephone calls Wednesday for comment.
The holder of a second mortgage, Beverly Hills Savings & Loan, has been asked by Manchester to defer the payment date of its $10-million loan due in December, 1993, until at least 1997, perhaps later, Beverly Hills S&L; officials said.
San Diego financier Tom Carter, who was appointed Beverly Hills board chairman by the Federal Home Loan Bank Board shortly after regulators seized control of the insolvent S&L; in 1985, said his board of directors is in no mood to make concessions to Manchester.
In 1985 Beverly Hills took a $20-million “hit” by reducing the value of its mortgage note to $10 million from $30 million as a condition of Home Savings’ $208-million refinancing of the hotel property, he said.
To defer the due date on $10 million would reduce the note’s current value and result in a further loss to the government and ultimately to taxpayers, Carter said, adding that cash flow projections he received from Marriott indicate that the hotel will be capable of paying the note off as scheduled.
“We don’t feel the government should take an additional loss on the investment,” Carter said. “Beverly’s position is that we have a second trust deed on the property, and we expect that second trust deed to be honored,” Carter said.
Carter’s sentiments were shared Wednesday by Tom Stickel, president of San Diego-based TCS Enterprises Inc., who is also a Beverly Hills Savings board director. “Our board finds the suggestion of further economic concessions on this project to be absolutely unacceptable.”
Reached at Marriott’s headquarters iun Bethesda, Md., senior vice president for development Ronald Eastman would not comment on his company’s negotiations with Manchester.
