Tottering Airtel Plaza Puts Hopes in Senior Housing : Business: Posh Van Nuys hotel is bleeding red ink from ‘80s overbuilding. But the city balks at concessions.

The operators of the foundering Airtel Plaza Hotel, already seeking a reduction in rent they pay to the city, have asked for permission to convert the hotel’s posh new tower into housing for senior citizens.

The city must approve the change “to avoid the disastrous possibility of the closure of such a large and potentially viable enterprise,” according to the request made last month, a copy of which was obtained by The Times.

Airtel, built on city-owned land at Van Nuys Airport, was an instant success when it opened in 1984, but earlier this year fell behind in rent payments by $110,000. Creditors helped Airtel make good on that debt and have also reduced monthly mortgage charges by 70%.

Airtel’s request to restructure its lease has drawn cold stares from the Riordan Administration, engulfed in fiscal crises of its own, and already embroiled in a high-profile fight with airlines at the Los Angeles International Airport and other interests over rents and landing fees there.

“There are many companies having financial difficulties,” said Assistant City Atty. Bret Lobner, who has advised the Airports Department on the Airtel issue.

“Is it the city’s responsibility to give them concessions so they can continue to operate? . . . Which one can we pick? Who can we say no to?”

Airtel’s trouble “doesn’t change their obligation to pay the rent,” Lobner said.

But Airtel Plaza President and CEO James Dunn said the San Fernando Valley no longer provides a market for the luxury suites and meeting rooms his hotel offers.

Unless Airtel Plaza can shift its business toward more basic services, he said, Los Angeles may soon have one more empty high-rise blighting its horizon.

“See? I can go to any room I want and it’s empty,” said a harassed-looking Dunn, knocking briefly before throwing open the door of one of the rooms in the five-story tower, silent as a tomb on a recent weekday afternoon.

When the $6.5-million tower was added to the hotel in 1989, Airtel Plaza was riding the tide of a seemingly endless corporate boom. But in today’s sagging economy, the tower is a bloated white elephant dragging the hotel into ruin. Less spectacular ventures like senior services suddenly seem more attractive.

Turning over the tower’s posh hot tubs, kitchen and fitness center to the care and housing of the elderly would have been unthinkable five years ago. Then, the Van Nuys Airport, a publicly owned general aviation facility, was touted as the new hot spot for development in the Valley.

The Department of Airports was leasing land at a rapid clip as a host of new office and retail developers snapped up property.

And Airtel Plaza was the crown jewel. When it opened in 1984, the independently owned $20-million hotel, then with 189 rooms, surprised observers by becoming an instant success. This, despite the fact that Van Nuys Airport is not a hub for passenger flights but a commercial airport used mainly by private planes and cargo flights.

Occupancy hovered at around 70% yearly through the ‘80s, compared to 51% on average this year, Dunn said. In 1985, the hotel reported revenues of $7.3 million.

Airtel’s operators needed no further persuasion. They were planning an expansion almost as soon as the main building was complete, and the tower opened in 1989.

Just who was using the swank hotel suites, meeting rooms, and private runway at the hotel’s back door? Large national and international corporations were the key to the hotel’s success, Dunn said.

Each year, General Motors, Hughes Aircraft, Litton Data Systems, the FBI and the state of California rented thousands of hotel and meeting rooms.

Those days are gone.

Conversion into a housing project for middle-income seniors requires few changes in the basic layout of the building, Dunn said. Hotel rooms would become living quarters. The chandeliered ballroom would become a cafeteria and activity center.

What makes the conversion possible is that the new tower is in a separate building, located a few yards from the main hotel with a patio between, he said.

Although Dunn concedes that the combination of hotel and assisted living quarters for the elderly would be unusual, he calls conversion of part of the hotel into senior housing “a natural. . . . We have the housekeeping in place, security, food services, laundry, dry-cleaning.”

Airtel has hired Bowen Senior Living of Portland, Ore., to study the feasibility of the housing project and manage it if the conversion is approved.

Bowen President Lee Cory said Airtel is not the first desperate hotel to contact his company asking if conversion to senior housing is possible. So far, though, the company has not gone through with any conversions. There would be no public subsidies for the housing, according to Dunn.

Cory said Bowen’s research shows there is an ample population of middle-income seniors 75 to 80 years old to provide a market for assisted living at the hotel.

Such a project would generate low profits in the short term but would be a reliable source of income over time, he said.

The proposal is the newest twist to lengthy negotiations between the hotel and its landlord, the Los Angeles Department of Airports.

For months, Dunn has been appealing to the city to lower the rent.

Hotel officials are secretive about just how dire their financial situation is today. But they said Airtel began losing money almost as soon as the new tower was completed. The increased rent for the acreage to build the tower and the debt on construction are dragging the hotel down, Dunn said.

Now, Dunn hopes his proposal to start the senior housing project will prompt the city to give his pleas for a rent break a second look.

Although there are provisions in Airtel’s long-term lease to allow the rent to be lowered based on changes in its assessed value in January, Dunn said that isn’t enough.

One airport official, who said his department has yet to receive detailed conversion plans, said giving Dunn a bigger break than the current lease allows would amount to a gift of public funds.

Don Miller, assistant manager of airport property for the department, said the dispute over Airtel’s ground rent is not related to the legal battle between the city and its tenant airlines over landing fees at LAX. Contending that the city’s low fees have amounted to a subsidy to the carriers, the city has raised what it charges for use of the airport. The airlines have sued to stop the new fees.

Ground rent for properties around Van Nuys Airport has not been a part of the city’s rate-restructuring effort and is not involved in the lawsuit. The rents, however, are another source of income for the Airports Department, which has been under pressure from Los Angeles Mayor Richard Riordan to bring in more money.

Against this backdrop, Miller said the city can’t afford to make exceptions for tenants such as Airtel, especially with so many airport users clamoring for concessions.

Airtel is now paying a lease of about $600,000 a year to the city, combining a base rate and a percentage of gross revenues, Dunn and airport officials said. Ideally, Dunn would like to see the city reduce the payments to about $200,000--a charge comparable to what the hotel paid prior to the expansion.

But the conversion proposal is more complicated, Miller said.

“Conversion is a more significant issue. It would require an amendment to the lease, City Council approval and an extensive environmental assessment. . . . It’s a long-term issue that would take months to resolve.”

All around the airport, the office buildings so optimistically developed in the ‘80s are struggling, said Mark Leonard, leasing agent with Trammell Crow Co. in Northridge.

Although Leonard’s client, the 44-acre Harman International Business Campus on Balboa Boulevard, is still 95% occupied, Leonard said most the new office landlords near the airport “probably have had a 10% to 20% correction in rental rates in the last three years. . . . No question that the market is not as strong as it was.”

The 53,000-square-foot Aviation Plaza office building on the corner of Sherman Way and Hayvenhurst Avenue was once considered proof of the bullish trend in the market for airport real estate.

Today, according to the building’s leasing agent, Bruce Fiala of Grubb & Ellis, the building is in receivership.

The confidence that once prompted many developers to take risks like Airtel Plaza’s expansion “has gone the other way now,” Miller said.

Leonard of Trammell Crow said the area has been particularly hard hit because those who still want office space in the Valley can afford what were once prohibitively expensive rentals in desirable areas such as Sherman Oaks and Woodland Hills.

Dunn has said he will commission no more work on conversion of the tower until he is persuaded that the city is positively disposed toward approving the project. Both parties expect negotiations to resume in January.