Horton Grand Joins Ranks of Troubled Hotels : Debts: Historic hostelry is popular, but rate wars, a room glut and the recession combine to force it into bankruptcy court.
The saga of the Horton Grand Hotel has all of the earmarks of a play that might be staged in the Hahn Cosmopolitan Theatre, which sits next to the hotel in downtown San Diego’s Gaslamp Quarter.
In the first act, a developer (Dan Pearson) struggles against all odds to rescue two historic buildings (the Horton Grand and the Kahle Saddlery from the wrecker’s ball. Eventually, the buildings are turned into a delightful hotel (the Horton Grand) in an increasingly vibrant part of the city (the Gaslamp).
But the Horton Grand’s real-life story line took a sour turn last Tuesday when Horton Grand Saddlery Hotel, the investment group that owns the hotel, bowed to increasing financial pressures and entered Chapter 11 proceedings in U.S. Bankruptcy Court.
With the filing, the hotel became the latest in a string of local hotels that are unable to make debt payments.
“We’re now tracking 46 (San Diego County hotel) loans that are in default,” said Robert Rauch, a San Diego-based hotel industry consultant. “We think the number is much higher . . . and we think about half of them will end up in bankruptcy.”
Occupancy rates at the Horton Grand and other downtown hotels were hurt when the opening of the bayfront San Diego Convention Center was delayed until November, 1989. The hotel also was caught up in a rate war that was driven by the steady stream of hotels that opened downtown during the late 1980s.
The glut of new hotel rooms kept several hotels, including the Omni (now the Doubletree), the Horton Grand and the Bristol Court, from turning a profit.
“The problem is, that, with a certain number of rooms and what you can charge for a night, you might be able to pay the light bill but profits are so low that you can’t meet debt,” Rauch said.
The Horton Grand’s unusual design also pushed costs higher than had been anticipated, observers said. That’s because the hotel incorporates original elements of the historic Horton Grand and Kahle Saddlery buildings. Developers had the older buildings dismantled and placed key parts of them in storage pending construction of the new hotel. The old parts were then incorporated into the new structure.
Although the resulting building is undoubtedly attractive, renovated and rehabilitated hotel properties “always carry hidden costs,” said Bruce Goodwin, a San Diego-based hotel consultant.
Hotel industry observers agree that the Horton Grand is a unique property in downtown San Diego. Its allure to guests is obvious on weekends, when the hotel runs near capacity, said Mark Briskin, who was hired in February to manage the hotel.
Briskin came on board when the hotel hired Annapolis, Md.-based Grand Heritage Co., which owns or operates eight “boutique” hotels--properties that, like the Horton Grand, are regarded as historic or landmark buildings.
Although boutique hotels such as the Horton Grand compete against many of the nation’s most powerful hotel chains, Grand Heritage Chairman John Cullin said business travelers increasingly are showing a preference for smaller, unique properties.
“About 65% of (Grand Heritage’s) business is with Fortune 500 executives and small conference groups of between 10 and 45 people,” Cullin said. “Our properties all have so much sex appeal . . . they’re exciting places to stay.”
Grand Heritage recently began marketing the Horton Grand through an international reservation service owned in part by Loews Hotels, the New York-based chain that recently opened a luxury hotel on the Silver Strand in Coronado.
Cullin said the hotel intends to spend about $300,000 on renovations that are needed in order to court well-heeled business travelers.
Briskin said his first objective is to bolster staff morale. “Employees are confused . . . they’ve worked hard . . . but we need to give them the tools to work with.”
Dan Pearson, managing general partner of Horton Grand Saddlery Hotel, which owns the 132-room hotel, declined to comment on the hotel’s financial woes. “My goal is to restructure to make this viable,” Pearson said. “I want the fairest (outcome) possible.”
The bankruptcy filing prevented San Diego businessman John Rose, owner of Rose Toyota, from foreclosing on the historic hotel. Rose, who recently purchased a $10.8-million first trust deed on the property from Bank of America, also holds a $2-million third trust deed. The city of San Diego, through the Center City Development Corp., holds a second trust deed for $1.4 million.
But, although Pearson believes that the Horton Grand will successfully restructure its debt through Chapter 11 proceedings, Rose expressed strong reservations.
“I don’t think there is a solution, not until the debt load can be reduced, and probably through bankruptcy proceedings,” Rose said. “The hotel has never had a problem” in attracting customers, he said. . . . It’s just got too heavy a debt load.”
The bankruptcy filing did not affect the adjacent Hahn Cosmopolitan Theatre, which is owned by a separate partnership, a theater spokesman said Monday. Nor did the bankruptcy filing include the Chinese Regal Condominiums project, which is connected to the hotel by a walkway.
