Partners Who Restored Hotel to Pack It In : Development: Two who transformed historic Huntington Sheraton are closing the firm to pursue other interests. They concede that poor economy is one of the reasons.
The two developers who transformed the aging Huntington Sheraton Hotel into the refurbished Ritz-Carlton, Huntington Hotel are closing shop.
Amid reports that they and the hotel have endured financial setbacks recently, partners Lary Mielke and Thomas Tellefsen announced last week that they are winding down Gemtel Corp., which administers and manages most of their projects. They will turn over control of some uncompleted projects to a pair of up-and-coming entrepreneurs and focus on personal business interests.
“It’s a good time to do it,” said Mielke, who has been a high-profile figure in Pasadena since he shepherded the Pasadena hotel refurbishment plan through stormy public hearings and a ballot initiative. “We don’t have a lot of projects under construction. There’s no major process we have to go through.”
Mielke and Tellefsen acknowledged that the current economic climate is a factor in the dissolution of Gemtel, but they denied that personal financial difficulties dictated their decision.
Nevertheless, the news has been mostly bad for the firm in the last year. Last spring, it dropped a plan to build a 400-room hotel in downtown Los Angeles as part of the proposed Disney Concert Hall project. The developers said a Los Angeles Community Redevelopment Agency requirement that it pay for an enriched benefits package for hotel workers was too large a burden.
In the summer, the firm was sued by the general contractor for the Ritz-Carlton project, whose officers charge that Mielke and Tellefsen owe them $11 million. Mielke and Tellefsen have countersued, charging that Los Angeles contractor Swinerton & Wallberg owes them $4 million for delays in completing the project.
The Ritz-Carlton, which opened in March as a luxury hotel, has so far been largely a bust, the developers concede. “It hasn’t met some of the projections made for the hotel,” Mielke said.
Sources close to the hotel project say that its opening was an unfortunate piece of timing. “It came just as the Gulf War hit and the economy went south,” one source said. “It was trying to carve out a niche with very upscale travelers when there were not many travelers in that range.”
But Gemtel’s biggest problem has been the economy, Tellefsen said. “The credit crunch severely impacted both our ability and the general market’s ability to attract financing for new projects,” he said. “Basically, there is no new financing no matter how strong a project is.”
Both men said they plan to concentrate largely on their completed projects, Mielke through Mielke Holdings, a personal holding company, and Tellefsen through Tellefsen Investments.
The two will continue as ownership partners in such completed projects as the Ritz-Carlton, Huntington Hotel, Mielke said.
At the same time, Dennis Costanzo and Dennis Alfieri, joining together as the Oak Knoll Group, will take over a pair of Gemtel projects: a $25-million restoration of 13 cottages on the hotel site and a retail/office project in the hotel’s historic carriage house.
Costanzo, 36, is currently Gemtel’s executive vice president. Alfieri, 32, is a principal of Alken Construction in Arcadia. Their new firm will be headquartered at the Ritz-Carlton.
Besides the two hotel projects, the Oak Knoll Group is working on a $30-million shopping center on the site of the Van de Kamp factory in Los Angeles. They are also working to build some Winston Tire facilities and a proposed 116-unit senior citizen housing project in Monrovia.
Costanzo said the new company will also be a service company for other developers.
Closing Gemtel will have little effect on the litigation with Swinerton & Wallberg, Mielke said, responding to rumors that he and Tellefsen were seeking to cover themselves legally by breaking up their old firm.
Though Gemtel was named as a party to the contractor’s action, Gemtel has little to do with the Ritz-Carlton, he said. “Some employees who worked for Gemtel also worked for the hotel project,” Mielke said. “That’s the only connection.”
Kenneth C. Gibbs, the attorney representing the contractors, agreed that there would be little effect on his clients’ suit, which alleges that the owners failed to pay four months worth of contract billings and a final payment of 10% of the contract that was due when the project was completed.
The Swinerton & Wallberg suit names two partnership associations, representing investors in the project, as well as Mielke and Tellefsen, Gibbs said. Gemtel was also made a party to the action, he said, because the firm appeared to be agent for the hotel.
“Everything was done on Gemtel stationery,” he said.
But even with the disappearance of Gemtel, Gibbs said, Mielke and Tellefsen would be personally liable should they lose the case.
Mielke said his decision was largely based on personal reasons having nothing to do with the Ritz-Carlton’s problems.
The development business carries special strains, he said. “There’s a lot of attention to detail, a lot of hours of the day devoted to the process,” he said.
Mielke, 49, said he was “not ready to hang up my cleats,” but he “wanted to head in a little different direction with my life.” He said he will focus on managing his own investments. Tellefsen, 41, said he is considering some real estate deals and “some companies I’m looking at getting involved in.”
