Hotel’s Owners May File Chapter 11 to Avoid Auction

Owners of the historic U.S. Grant Hotel are expected to file for protection under Chapter 11 of the U.S. Bankruptcy Code Monday, a move that would keep the highly visible downtown redevelopment project from being auctioned off at the county courthouse Wednesday.

“There is likely to be an announcement on Monday,” according to hotel manager Chris Venner. “It looks possible that there likely will be a filing of Chapter 11.” Venner declined further comment because New York-based Sybedon Corp., the hotel’s managing general partner, is “still in negotiations” with Home Federal Savings & Loan.

The Wednesday auction is scheduled to go forward unless the hotel’s owners make current their delinquent $32-million mortgage loan, according to Sherri Zizzi, a spokeswoman for Home Federal, which holds the mortgage.

“But if they do file (for protection) that sale would be postponed,” Zizzi said Friday.

Home Federal would “welcome the filing, if it does take place on Monday, because it would allow all parties to get together in one forum--the court--to discuss the hotel’s future,” Zizzi said.

A bankruptcy filing would delay a foreclosure sale for as long as six months, according to attorneys who are familiar with the case.

Home Federal also holds a second mortgage on the 77-year-old hotel. The S&L; filed a notice of default Sept. 29, saying that the hotel owners had been in arrears since February, 1987, on $2.8 million in back interest and principal payments.

Legally, lenders can foreclose on properties just 3 1/2 months after filing a default notice, unless the default is settled.

The hotel owners are apparently in default on payments on their first mortgage, a $4.8-million loan from the Joseph Drown Foundation. And, the hotel owes $6 million to the city in the form of an Urban Development Action Grant that was made to spur downtown redevelopment.

The U.S. Grant has suffered from high debt and lower-than-expected occupancy rates since it opened two years ago after a four-year, $64-million refurbishing.

Under Chapter 11, a company, which continues to operate, is protected from its creditors while it reorganizes and develops a strategy to pay off debts.