Hotel Deal May Stanch Flow of Red Ink : BALDWIN PARK

To those not privy to its dark financial side, the pastel pink and peach Hilton in Baldwin Park may seem every bit the towering flagship development it was meant to be.

Sure, it has put Baldwin Park on the map.

The 10-story landmark along the San Bernardino Freeway (10) shows that even a city of very modest means can attract American Express-wielding corporate executives.

To nearby residents, the guests are a welcome contrast to the drug dealers and prostitutes that frequented the liquor store and ramshackle hotel that made way for the 196-room Hilton.

But since the hotel went up four years ago, the city has paid more than $3 million to bail out the venture. Under a deal expected to win council approval this week, it will continue to lose money for years to come.

In a proposed out-of-court settlement, the developer has agreed to forgive the city for breaking a promise to underwrite the hotel’s operating losses. In exchange, the city will allow him to keep millions of dollars in future sales and bed-tax revenue that it would otherwise have collected from the Hilton and an adjoining commercial center.

If approved by the City Council on Wednesday night, the settlement could end a financial nightmare for the city.

“I’m very relieved. The (Hilton deal) has been like a black cloud hanging over the head of the city,” said Mayor Fidel A. Vargas.

Councilwoman Julia S. McNeill said she is unhappy with the terms of the agreement but will probably vote to approve it because the city does not seem to have a choice.

“This could have ended up costing us a lot more money and caused some very serious financial problems for the city,” McNeill said.

In a quest to boost the city’s image, the city’s redevelopment agency lured the prestigious hotel franchise to town in 1984 with a promise to underwrite all of the developer’s losses for 10 years, and half forever after. In return, the city got half ownership of the business and half of all profits--which have amounted to nothing so far. The city has no control over the Hilton’s management or expenses.

Because the city put no limit on how much it would spend to cover the hotel’s losses, the Hilton ranks as one of the state’s most unusual redevelopment projects, according to William Carlson, executive director of the California Redevelopment Assn.

“It’s not uncommon for redevelopment agencies who have done a hotel to lend some assistance by paying losses for a specific period or dollar amount,” he said. “Baldwin Park’s project was so unusual because it was open-ended.”

And that has rankled some of the town’s business leaders, who would rather have seen the millions the city poured into the Hilton invested in economic development.

“I was amazed the city had signed such an agreement,” said Dick Nichols, executive director of the Baldwin Park Chamber of Commerce. “The first thing I thought was, ‘They’ve given the store away.’ Any business would love to have that kind of partner.”

The Hilton’s red ink has been a constant source of embarrassment for city officials and led to a slew of resignations at City Hall after the hotel’s losses began to skyrocket.

Since the hotel opened in 1989, the city manager, attorney and redevelopment director have left. All but one of the council members who approved the Hilton deal is also gone.

“It’s hard to imagine (top city staff members) recommended a deal to the council with unlimited exposure to the city,” says City Manager Don Penman. “The hotel was over-financed and overbuilt--a 196-room hotel in a market that didn’t exist.”

Bradley Talt, first vice president of CB Commercial Real Estate Group in the San Gabriel Valley, said Baldwin Park’s Hilton is an outgrowth of the “hotel fever of the mid-1980s.”

“I don’t think anyone did a whole lot of research on (whether the market would support a major hotel),” Talt said. “A Hilton in Baldwin Park seemed a bit odd at the time.”

So far, Baldwin Park, with a median income of $32,684 in 1992 that ranked it among the San Gabriel Valley’s lowest, has spent $3.3 million to keep the hotel afloat.

Unable to keep pouring millions into the Hilton, the city in late 1990 decided to stop paying. In turn, the hotel’s Orange County-based developer, Stanley Gribble, sued for more than $15 million. Gribble could not be reached for comment.

City officials now contend it was illegal for the redevelopment agency to enter the agreement with Gribble, and therefore the city should not have to pay for the Hilton’s losses.

The city has sued a former city attorney and a legal firm for allegedly giving the City Council bad advice on the Hilton deal. That litigation has been put on hold while the city and Gribble try to resolve their dispute. The former city attorney, Robert Flandrick, could not be reached for comment, and officials of the law firm of Greenberg, Glusker, Fields and Claman & Machtinger of Century City did not return phone calls.

Council members say they cannot explain why their predecessors approved the deal.

“How it ever happened is beyond everybody,” said Councilman Raul Martinez.

Now, city officials say, they are thankful Gribble and a lesser partner in the hotel are willing to drop their lawsuit against the city as part of the proposed out-of-court settlement.

Under the agreement, Gribble would not have to pay bed taxes for 20 years. The city had hoped to collect about $250,000 a year in bed taxes.

Over the next three years, the developer would also keep about $300,000 in sales taxes from his 17-acre project, which includes the Hilton and the adjoining commercial center.

The city would also forgive an estimated $500,000 in property taxes and $450,000 in bed taxes that city officials say Gribble stopped paying after the city refused to underwrite hotel losses.

The settlement “is not a bad deal,” said City Manager Penman, because the city could lose millions more if it had to cover future hotel losses.

Meanwhile, the hotel’s finances are being reorganized under the Chapter 11 Bankruptcy Code. Penman said the judge handling the case has agreed to allow the hotel to pull out of bankruptcy if the City Council, and then the judge himself, sign off on the out-of-court settlement.

The developer would use the money to pay off two loans--totaling about $18 million--on the hotel, which was 100% financed.

When asked for his reaction to the proposed settlement, Bobbie Izell, the only councilman who was around nine years ago when the Hilton deal was signed, breathed a sigh of relief.

“Yes,” he said. “Finally it appears to be over.”