Sale Stopped : Grant Hotel Files for Bankruptcy

As expected, the owners of the U.S. Grant Hotel on Monday filed for protection under the U.S. Bankruptcy Code, keeping the landmark downtown hotel from being sold during a foreclosure auction at the county courthouse Wednesday.

The bankruptcy filing will give the recently refurbished hotel “a four-month grace period to establish a plan of financial reorganization,” hotel manager Chris Venner said Monday.

U.S. Grant Hotel Associates, the limited partnership that owns the hotel, and New York-based Sybedon Corp., the partnership’s general partner, “fully expect” that the hotel will successfully emerge from the reorganization, Venner said.

The hotel will “continue to operate as a four-star, luxury hotel during the proceedings,” Venner said. “We will not deviate from that standard.”

‘Totally Anticipated’

The Grant had been scheduled to be auctioned off during a Wednesday foreclosure sale on the front steps of the county courthouse. Home Federal Savings & Loan initiated foreclosure proceedings because the Grant’s owners were delinquent on a $32-million loan held by the San Diego-based S&L.;

Monday’s “filing now stays that sale and it cannot go forward as planned,” Home Fed attorney Victor Vilaplana said Monday. “But what happened today was totally anticipated.”

Home Fed will give “strong consideration” to filing a motion in federal court that would let the foreclosure sale proceed as planned, Vilaplana said. And Home Fed will scrutinize anticipated requests from the Grant “for additional funds that will be needed to operate the hotel” during the Chapter 11 bankruptcy proceedings, Vilaplana said.

Monday’s filing might also give the hotel some protection from two legal actions filed against Sybedon and U.S. Grant Hotel Associates.

Those suits were filed by Robert Lubin, a hotel investor, and a cross-complaint filed by the City of San Diego.

Lubin’s suit alleges that the hotel’s owners and Prudential-Bache Securities used fraud and misrepresentation to attract $30 million from investors. The city is trying to improve its standing among the creditors in the event that a foreclosure sale is held.

The hotel’s owners are believed to be current on a $4.8 million loan from the Joseph Drown Foundation. They also owe $6 million to the City of San Diego in the form of an Urban Development Action Grant that was made to help spur development in downtown San Diego.

High Debt Since Refurbishment

The Grant, a four-star luxury hotel brought back from the dead by an extensive renovation, has suffered from high debt and lower-than-expected occupancy rates since reopening in 1986 after a four-year, $64-million refurbishment. Its owners and its principal secured lenders--Home Fed, the City of San Diego and CDS-Grant Associates--have been unsuccessful negotiating a debt restructuring agreement.

Monday’s filing in U.S. Bankruptcy Court of the Southern District of California means that the debt restructuring process will now be overseen by a court-appointed trustee. That trustee and the Grant’s lenders and vendors must approve any reorganization plan that is proposed during the bankruptcy proceedings.

Vendors who are awaiting payment from the Grant “in the short term will not be very happy” about the filing, Venner acknowledged, because the filing could further delay payments that are already late.

However, Sybedon President Edwin J. Glickman on Monday expressed “appreciation to the hotel’s many suppliers of goods and services who have cooperated fully with the hotel during this difficult period.”

And Glickman predicted that the filing will give the Grant time to prepare a “sound financial arrangement . . . (that will allow the hotel to) achieve its long-term potential as the finest hotel in San Diego.”

Woes Tied to Occupancy Rates

The Grant’s financial woes are directly tied to occupancy rates that have been lower than anticipated, Venner said. However, the hotel’s occupancy rate, which was an anemic 39% when the hotel opened in 1986, moved to 50% during 1986, and is expected to hover at about 60% during 1988, Venner said.

“We’ll take a bump because of (the bankruptcy filing) but based on the past couple of months, we’ll be going up,” Venner said.

Venner linked the hotel’s financial troubles to delays that have pushed back opening of the planned downtown convention center until the summer of 1989.

“That’s part of it, but the city’s downtown area has not grown as quickly as everyone thought,” Venner said. “Renovation of some not-so-pleasant areas has not taken place as fast as everyone thought it would.”

“The hotel will become successful,” Venner said. “With the filing, the employees are all safeguarded because we’ll be able to make sure all payrolls are met. And we’re confident that we’ll be able to pay off our debts.”