Deep in Debt, Owners May Have to Sell Ritz-Carlton : Landmarks: Negotiations with creditors continue. But if they fail, Huntington Hotel will be auctioned off.
The upscale Ritz-Carlton, Huntington Hotel in Pasadena will be auctioned off Thursday morning unless its debt-laden owners can reach a last-minute agreement with their creditors.
Owners Lary Mielke and Thomas Tellefsen, who conceded that they are in default on a multimillion-dollar loan from the Dai-Ichi Kangyo Bank, have struggled to stay afloat since the rebuilt hotel opened in March, 1991.
As negotiations with creditors proceeded Tuesday, the Ritz continued welcoming guests to its $240-a-night rooms.
According to sources close to the negotiations, Mielke and Tellefsen owe $106.4 million in loan principal and interest to Dai-Ichi Kangyo Bank, as well as a sum of money to the project contractor, Swinerton & Walberg, and to more than 30 subcontractors.
The hotel was built on the same South Oak Knoll Avenue site as Pasadena’s Huntington Sheraton Hotel, which hosted presidents, celebrities and European aristocrats for almost 80 years, until it was found to be seismically unsafe in 1985.
Mielke said Tuesday that negotiations are continuing with the bank and that the auction, scheduled for Thursday morning at a title company office in Rosemead, will be called off if a deal is struck.
Mielke and Tellefsen were part of a group of investors who won a referendum in 1987, over the opposition of Pasadena preservationists, that allowed them to tear down the old hotel and replace it with a new one.
The new 383-room hotel, which is managed by the Ritz-Carlton Hotel Co., preserved the same Mission-influenced style as the old and retained such amenities as a Japanese garden and the covered picture bridge, which showcases 41 oil paintings by the late Frank Montague Moore.
“They did a beautiful job in developing it,” said industry analyst Bruce Balton of PKF Consultants in Los Angeles. “They just opened at the wrong time, without enough capital to withstand this kind of a recession.”
Industry analysts say that auctioning a hotel, even a landmark hotel like the Ritz-Carlton, is not unusual in the current economic climate. The Stamford, Conn., Marriott Hotel; the Omni Georgetown in Washington, and the Phoenician Hotel in Phoenix are just a few of the hotels that have gone on the block in recent years.
Several analysts say the Ritz-Carlton reopened at exactly the wrong time: just as the Gulf War was concluding and the recession was deepening. Both circumstances put a damper on travel, analysts said.
Smith said hotels in the Los Angeles metropolitan area have been particularly hard hit, with occupancy rates dropping from 65.3% in 1990 to 59.6% last year. At the same time, the Ritz was encumbered with an extraordinary amount of debt, said Saul Leonard, a Century City-based analyst. “Basically, they spent too much on renovations,” Leonard said. “It just cost too much based on what hotel occupancies and room rates are in today’s marketplace.”
Despite the debt, the Ritz-Carlton is a good buy, analysts said. The hotel has been operating in the black this year, Tellefsen said, with an occupancy rate over 70%.
“There’s no value in closing it,” said Gary Wescombe of Kenneth Leventhal & Co. in Newport Beach. “The only reason to close a hotel would be if operating expenses were higher than income, forgetting for a minute about the debt.”
