Maruko Files for Protection From Creditors

Tokyo-based real estate giant Maruko Inc.’s decision this week to file for Chapter 11 bankruptcy in the United States provides further evidence of the severe slump gripping the nation’s hotel and commercial real estate industry.

The filing late Wednesday in San Diego by Maruko, owner of such prominent Southern California hotels as the Hollywood Roosevelt and Hyatt Grand Champions in Indian Wells, also marks the first concurrent Japanese/U.S. bankruptcy filing ever.

The company filed for protection from creditors in Japan on Aug. 20, said Arnold M. Quittner, a partner in Strook & Strook & Lavan, the Los Angeles law firm appointed by the Tokyo District Court to represent the trustee who has taken control of Maruko.

In its U.S. bankruptcy petition, Maruko--which acquired scores of hotels, condominiums, office buildings and shopping centers during a frenzied multimillion-dollar buying spree in the late 1980s--claimed assets of $1.75 billion and liabilities of $1.8 billion.

Quittner said Maruko’s properties “will operate normally and won’t be affected at all” by the proceedings. Chapter 11 shields a company from its creditors while it comes up with a plan of reorganization.

Maruko’s far-flung U.S. real estate empire also includes five Los Angeles condominium complexes as well as the Civic Center Holiday Inn in San Francisco and the Sports Arena Travelodge Hotel in San Diego.

Its filing is the latest in a series of bankruptcies affecting Southland hotels. Less than two weeks ago, the owners of the Westin Bonaventure filed for bankruptcy protection to stave off foreclosure by its lenders.

These bankruptcy filings illustrate the intensifying effort on the part of some commercial real estate owners to shelter themselves from creditors who have grown weary of loan losses on some major properties.

Quittner said Maruko’s financial problems stemmed from the recession, the credit crunch and excessive debt. In court papers, Maruko listed more than 20 major creditors, including more than $100 million owed to its main lender, Mitsubishi Trust & Bank, and $37,000 owed to the Indian Wells Country Club in Palm Desert for golfing fees.

Maruko had “expectations . . . of a guaranteed stream of payments from its properties and favorable interest rates” back home in Japan, Quittner said. But, he added, interest rates in Japan skyrocketed in the past year, and the U.S. commercial real estate market has slumped badly.

“It’s the worst hotel business in 40 years,” Quittner said.

Maruko’s hotel woes were also compounded by setbacks in the condominium and office building markets, experts say.

“Condominium and office sales hurt them a lot,” said Yukio Matsumoto, president of the Torrance-based real estate consulting firm YM Investments. “They overpaid for premium property thinking interest rates in Japan (would remain low). They even bought buildings with negative cash flow, thinking they could make it up later.”

Maruko’s Southland Holdings

Below are Maruko U.S.A.’s major Southern California properties, which will continue to operate during the company’s financial reorganization.

Hotels Hollywood Roosevelt, Los Angeles Travelodge, San Diego Maruko Hotel, San Bernardino Hyatt Grand Champions, Indian Wells

Office Buildings Maruko Building, Los Angeles High Bluff-Del Mar, San Diego

Shopping Center Beverly Plaza, Los Angeles

Condominiums Briarwood, Los Angeles Doheny, Los Angeles Park Wellington, Los Angeles Shoreham Towers, Los Angeles Westview Towers, West Hollywood