Loan-Financing Woes Push Waterfront Hilton Into Chapter 11 Filing

The Waterfront Hilton, a hallmark of Huntington Beach’s redevelopment, filed for bankruptcy protection Wednesday after it failed to come to a refinancing arrangement with its Tokyo-based lender.

Waterfront Construction No. 1, general partner and developer of the 300-room hotel beside Pacific Coast Highway, defaulted on a $57.7-million construction loan in January and has since tried to renegotiate its debt with the Los Angeles branch of Dai-Ichi Kangyo Bank Ltd.. The hotel had 90 days to come to terms or face foreclosure or the sale of the property.

“We couldn’t come to an agreement as to what the market value of the property was,” said Steve Bone, president of the hotel and partner in the project with Newport Beach developer Robert Mayer. “That was really the reason for the reorganization. . . . This is not a battle over how we are operating the hotel. This is a battle over the value of the property.”

The Chapter 11 filing will give Waterfront some “breathing room” and bring the bank to the negotiating table, Bone said. Bank officials could not be reached for comment Wednesday. In the past they have declined to comment on matters involving individual debtors.

The bankruptcy filing is not surprising, said Donald Wise, vice president for lodging and hospitality programs at CB Commercial Real Estate in Anaheim. “Japanese banks are not used to writing discounts on their notes.”

The Waterfront opened in 1990, just as the national hotel boom had peaked. Developers found themselves in a market saturated with lavish rooms, and they saw the value of their properties plunge.

The Hilton, which had a relatively high occupancy rate of 75% last month, has been unable to meet expected room rates of $160 to $250 a night, Bone said. Instead, rates range from $125 to $175.

“Everyone should know that the hotel continues to operate profitably and successfully,” Bone said. “The customer will see absolutely nothing different.”

Destination Properties, the hotel’s management company, will continue to run the hotel, he said.

Waterfront Properties and Robert Mayer Corp. are still planning to build other hotels and a condominium project near the Waterfront Hilton, though the projects are on hold and probably will be scaled back.

Meanwhile, brokers are expected to close the sale today of another Orange County luxury hotel, the Beverly Heritage Hotel in Costa Mesa. The Resolution Trust Corp. plans to sell the 238-room hotel to Encino investment group Amgreen Partners and the Wyndham Gardens hotel chain in Dallas. The RTC has took possession of the property about a year ago.

The hotel, near South Coast Plaza, cost about $28 million to build in 1986, but its value has fallen and may be as low as $12 million, brokers say.