Lincoln’s Extravagant Resort Sold to Kuwait at Loss : * S&L;: The transaction, which includes the Phoenician and the Crescent Hotel, will cost taxpayers $66.5 million.
The Phoenician Resort in Scottsdale, Ariz., the most luxurious and spectacular of Lincoln Savings & Loan’s holdings and a symbol of the industry’s extravagance, has been sold to Kuwait at a loss.
The Kuwaiti Investment Office--which already has a 45% stake in the company that owns the Phoenician and the Crescent Hotel in Phoenix--bought out the remaining interest from the Resolution Trust Corp. for $111.5 million. The federal agency is liquidating the Irvine thrift, which failed in April, 1989.
The transaction results in a loss to taxpayers of $66.5 million on the hotels--part of the estimated $2.6-billion taxpayer cost of cleaning up Lincoln, the nation’s costliest thrift failure to date.
To acquire Crescent Holdings Inc., the Lincoln subsidiary that owns the hotels, the Kuwaiti group paid $11.15 million--a 10% down payment--and received financing from the RTC for the rest. The promissory note pays interest of 10.5% and is due in five years, according to Vernon L. Peckham, the RTC managing agent for Lincoln.
“The note is fully secured by the property and a pledge of all the stock of the corporation,” Peckham said. “If the Kuwaitis default, I’ve got a real bonanza.”
But the sales price was criticized by a lawyer for Charles H. Keating Jr., the former Lincoln owner who is on trial on state securities fraud charges.
Attorney Stephen C. Neal said regulators had a much higher bid from the Kuwaitis during the summer of 1989, shortly after Lincoln was seized by federal regulators, and refused to take it.
Neal would not reveal the offer, but said it would have resulted in a profit--not a loss--to taxpayers. He said he will present evidence of the offer soon in Keating’s securities fraud trial in Los Angeles County Superior Court.
“This is not unusual for the RTC to turn down offers one day only to sell to the same parties for a lower price another time,” Neal said.
Peckham, however, said the earlier offer--as well as two other offers in March and August of 1990--either did not include the purchase of both hotels or did not provide as much money as the current sale.
The Phoenician, nestled at the foot of the Camelback Mountains, is a world-class luxury hotel with 580 rooms and casitas-- or small bungalows--an 18-hole golf course, 11 tennis courts, eight swimming pools, a spa, meeting rooms and six restaurants.
The Crescent Hotel caters to a business clientele with 344 rooms, tennis courts, a swimming pool, a health center and convention facilities.
Crescent Holdings built the hotels at a total cost of $323.7 million. But it was the lavish Phoenician, with grand pianos throughout the hotel and in two suites, that drew the ire of federal regulators.
The Phoenician cost $295.7 million to build. Regulators charged in 1987 that it was worth no more than $200 million and that Lincoln should record a loss of up to $100 million for the difference. Keating refused to acknowledge the lower value and found a purchaser in the Kuwaiti Investment Office.
He sold the investor group a 45% stake in Crescent Holdings in 1987 for $145.7 million. That figure stymied regulators at the time because it justified the full value of Lincoln’s investment in the hotels, which totaled $323.7 million.
More recent appraisals by the RTC have lowered the value of the hotels. Wednesday’s final purchase represents a total investment by the Kuwaitis of nearly $257.2 million, leaving taxpayers to cover the remaining $66.5 million.
