Troubled U.S. Grant : City Wants to Better Claim on Hotel Funds

The City of San Diego asked a Superior Court judge on Monday to improve its standing among the creditors who would be reimbursed if the troubled U.S. Grant Hotel is sold in foreclosure proceedings.

The city says it is entitled to an improved position because Home Federal Savings & Loan, which holds a $32-million second mortgage on the historic hotel, and the owners of the U.S. Grant kept the city in the dark about financial arrangements that work to the city’s disadvantage, Assistant City Atty. Curtis Fitzpatrick said.

Peter Pickslay, general counsel for Home Federal, said he had not seen the city’s legal papers and could not respond to Fitzpatrick’s allegations. The city’s action, which was filed Monday in Superior Court, was a response to a foreclosure action initiated by Home Federal in September.

The city, which loaned $6 million to the Grant in 1984, is third in line for payments behind the Joseph Drown Foundation, which holds a $4.8-million first mortgage, and Home Federal.

“If indeed there is going to be a foreclosure on the hotel,” Fitzpatrick said, “and the hotel is going to be sold as required by law . . . we are entitled to more considerations than just standing third behind $37 million of notes and trust deeds which are ahead of us.”

Fitzpatrick said Home Federal and Sybedon Corp., which owns the hotel, signed an agreement regarding interest rates and payment schedules in December, 1985, but did not record it with the county until June, 1986. The agreement works to the city’s disadvantage by making it less likely to receive payments from a foreclosure sale, Fitzpatrick said.

He said the city believes that it should receive standing equal to or better than Home Federal’s.

The 77-year-old Grant has been plagued by financial problems caused by its high debt and low occupancy rate since it opened in December, 1985, after a $64-million renovation.

Home Federal, which has declared the Grant in default on its mortgage, has asked that the Superior Court appoint a receiver to take over management of the downtown landmark, on Broadway across from Horton Plaza.

Observers believe that there is little chance of the Grant being closed because that would cut off income to creditors.