Lender Moves to Foreclose on the Bonaventure Hotel in Downtown Los Angeles

The Westin Bonaventure, downtown Los Angeles’ biggest hotel, faces possible foreclosure amid what some industry officials say are the worst market conditions ever to confront the area’s hotels.

Equitable Life Assurance Society said Wednesday that it is taking steps to foreclose on the Bonaventure, which industry sources say is in trouble partly because the new Los Angeles Convention Center is so far behind schedule.

New York-based Equitable’s real estate arm in June filed a legal notice of default against the Japanese-controlled limited partnership that owns the Bonaventure. The insurance giant maintains that the partnership has failed to meet the terms of its $75-million mortgage since November, 1990.

A source knowledgeable about the negotiations between Equitable and the partnership led by Mitsubishi Trading Co. said the insurer apparently decided to play hardball to try to force a settlement.

Analysts said the Bonaventure’s problems are a reflection of the fact that hotel occupancy rates remain in the doldrums all over the country as the economy inches out of the recession.

The foreclosure threat also is a symbol of an aggressive effort by many banks and insurance companies to dispose of problem real estate loans in an effort to shore up profitability.

Under California law, the Equitable must wait 90 days after it filed the notice of default--until Sept. 24--to file a notice of foreclosure. Thirty days later, Oct. 24, it can actually foreclose.

The steps that it is taking toward foreclosure apparently are designed to persuade Mitsubishi, one of the world’s largest corporations, to come up with the money to keep the hotel--or lose its investment. Mitsubishi officials could not be reached for comment.

A key factor in the Equitable’s decision to bear down on its problem loans was a $1-billion infusion from the French insurer Groupe Axa in July, Equitable spokesman Jonathan Miller acknowledged. “We’re in a well capitalized position . . . to aggressively deal with the problems in our real estate portfolio, and that’s what we’re doing,” he said.

The insurer has also filed a notice of default on the Brinderson Towers office project in Irvine. It said Brinderson Corp. is nearly a year behind in payments on a $61-million loan.

The Bonaventure’s troubles are an example of the fact that “market conditions have never been worse” for the downtown hotels, said George Kirkland, president of the Los Angeles Convention & Visitors Bureau.

Paul DeMyer, a hospitality-industry consultant at the Kenneth Leventhal & Co. accounting firm in Los Angeles, said downtown occupancy rates have dropped from 70% in 1988 to an estimated 61% this year. The break-even rate for most hotels is 64%, he said.

Although some downtown hotels are doing better than others, most of the major ones are hurting from low occupancy rates, analysts said. Besides the Bonaventure, the big ones are the Biltmore, Checkers, Hilton Towers, Hyatt Regency, New Otani and Sheraton Grande.

In addition to the recession, DeMyer said, occupancy rates have been hurt by a drop in travel during the Gulf War and the consolidation of many financial services companies, which has meant fewer business travelers to the downtown area.

The delay in construction of the new Los Angeles Convention Center has been a major factor in occupancy problems at larger downtown hotels such as the 1,400-room Bonaventure, said Peter Mathon, a spokesman for one of the hotel’s minority partners, Atlanta-based Portman Cos.

He declined comment on rumors that the partners are trying to sell the Bonaventure.

Kirkland said a city the size of Los Angeles should have 40 conventions a year. Because of the unsuitability of the Los Angeles Convention Center, he said, “if we have three citywide conventions a year, that’s a lot.”

The new center, originally scheduled to open this year, won’t be completed until the fall of 1993.