Music Festival Signaled Sour Note of Chapter 11 for Kingston Hotel

The Kingston Hotel, a San Diego hostelry with a troubled past, filed for protection under Chapter 11 of the U.S. Bankruptcy Code on Friday, one day after the opening of a Mozart music festival for which the Kingston serves as the title sponsor and has provided at least $35,000 in in-kind donations.

The downtown hotel is donating the use of 30 of its 102 guest rooms for two weeks to out-of-state musicians who are performing through June 9 in The Kingston Hotel Mainly Mozart Festival at the Old Globe Theatre, said Lee Julien, the hotel’s general partner.

Julien said the hotel is also allowing the musicians to rehearse free in the Top of the Kingston, the hotel’s rooftop ballroom.

But Julien said Kingston’s support for the arts, such as offering vacant rooms to musicians at no cost, is a good business move. Since April 1989, when Julien’s investor group took over the reins at the Kingston Hotel, occupancy rate has increased from 45% to 65%. Julien said the hotel, which charges an average $75 a room per night, needs to reach an occupancy rate of 70% to break even.

“We had empty rooms,” Julien said. “Rather than just let those empty rooms sit, we decided to donate them to the arts community. We were more than delighted to do it, not just because we like supporting the arts, but the recognition we gain in return attracts customers.”

For the time being at least, the hotel will remain open during the bankruptcy proceedings, its owners said Wednesday. The Kingston is the third major downtown hotel--the other two were the U.S. Grant and the Omni San Diego--to file a bankruptcy petition over the last three years.

The hotel’s owners, Executive Hotel Plaza Associates partnership, purchased the hotel for $5.7 million in April 1989. The hotel partnership consists of general partners, LCC Hotels Inc. of Los Angeles and Julien/Livett Executive Associates of San Diego, and five limited partners.

The partnership filed for bankruptcy Friday, just minutes before the hotel was to have been put on the block for a foreclosure sale, Julien said. The foreclosure loomed because the partnership had failed to make payments--a total of $500,000 since December 1989--on a $4.6-million loan from Dollar Dry Dock Bank of New York, Julien said.

The partnership failed to make its payments when Malcolm Kingston--chairman of the board of LCC Hotels, which has majority ownership of the hotel--refused to provide more funds after a dispute between the hotel’s two managers forced Kingston to “lose confidence” in how the hotel was being run, Julien said.

Kingston for a time made payments on the loan out of his own pocket after the hotel failed to generate enough cash.

But, according to Julien, there was “a disagreement over management style” last year between Laral Hotels of San Luis Obispo, the Kingston’s management company, which set hotel operation policy, and Robert McDaniel, the hotel’s managing director, who oversees day-to-day operations.

“There were several run-ins,” Julien said. “For example, Laral came in and installed these expensive reservation computers without even telling” McDaniel. “McDaniel and I didn’t think it was necessary. We wanted to provide our guests with a personal touch and wanted to do things manually.

“Not knowing what the resolution of this conflict would be, I am assuming that Kingston felt uncomfortable about putting up any additional capital,” Julien said.

Laral Hotels resigned as the hotel’s management company late last year, leaving McDaniel and Julien, in essence, in charge of hotel operations. But Julien said an official contract wasn’t executed with LCC Hotels until April. He added that Kingston has refused to provide funds to make the bank payments since Laral gave up management of the property.

“Basically, we got Kingston’s vote of confidence (by virtue of LCC Hotels getting a management contract), but with no money attached, it left us high and dry,” Julien said. “The hotel has turned around, but the turnaround is not complete. This hotel still needs an infusion of money.”

Once they had been designated as the hotel’s official managers, Julien and McDaniel said they felt free to aggressively seek a new group of investors to raise $1.5 million--a task Julien says is now near completion.

“I expect within 30 days to have a written contract with this new group of investors,” Julien said. “The only reason why we filed for bankruptcy is that we ran out of time. There just wasn’t enough time to identify the investors and do all the paper work before the foreclosure sale. You can’t come up with $1.5 million in 60 days.”

Creditors contacted Wednesday expressed confidence that the Kingston Hotel will rebound from bankruptcy. And they said they approved of Kingston’s donating rooms to the festival musicians.

“They’ve told us that it’s a temporary problem, something among the owners. . . . I see no reason not to believe them,” said Richard Rosenblatt, chairman of the board of L.P.C. Media Inc., a Rancho Santa Fe-based advertising agency that has handled promotional work for the Kingston. “I’ve been watching the way they run the place, and I think they do it very well. I think they’ll overcome this.

Rosenblatt added, “As far as putting up the musicians, I thought it was an excellent way of getting the name out. As an advertising man, I can appreciate a good move like that.”

The hotel is also home to the 88-seat, 2,000-square-foot Kingston Playhouse, where The Bowery Theatre group performs. For nearly a year, the Kingston has allowed the theater group to perform at its facility rent-free, a facility Julien admits was difficult to lease.

“The business the Playhouse attracts to our restaurant and the guests who stay overnight to go to the theater is amazing,” Julien said. The hotel also features Malcolm’s First Avenue, a restaurant that features regional California cuisine. “It brings in far more than what we could charge in rent.”

Julien said promotion of the arts has paid off for the Kingston in other ways as well.

Since April 1989, when McDaniel began managing the hotel, monthly food and beverage sales from restaurant and banquet activities have tripled to $95,000 from $32,000. During that same period, the average daily room rate has increased to $75 from $50.

Another creditor, Kirk Jackson, executive vice president of San Diego-based Jackson & Blanc Heating and Air Conditioning, also approved of the hotel’s management.

“I can’t see them having any problem attracting a new group of investors,” Jackson said. “They have kept us up to date about their problems. . . . They have been very up front with us, and we believe they’ll take care of the money that’s owed to us and the other creditors.”

Still, despite the apparent goodwill of some of its creditors, the fact remains that the hotel owes $400,000 to various creditors, not including the $500,000 in back payments owed to the New York bank.

The nine-story hotel on 1st Avenue near Broadway, once known as the Executive Hotel, was built by C. Arnholt Smith as part of a two-block development. The development has changed ownership several times, which has often resulted in inconsistent management, hurting the hotel’s operations.

“It’s always been a stepchild to the rest of the block,” McDaniel said. “Every time the block changed hands, hotel management changed. With that kind of inconsistency you can’t build any loyalty among your customers. And that’s critical for us because we’re a community-based hotel that depends upon repeat customers.”

The Kingston also offers the Camelot Club, a private membership lounge for hotel guests and the Cuyamaca Health Club.