Bid to Buy Hotel for School Site in Jeopardy

The Los Angeles Unified School District’s month-old deal to buy the famed Ambassador Hotel and put a school on the property appeared to be teetering Tuesday after a federal judge ordered the owners to negotiate with another potential buyer.

City and school district officials reacted angrily to the offer by a Beverly Hills housing developer to pay $15 million more than the district is offering for the 80-year-old Wilshire Boulevard landmark, which is now abandoned and in bankruptcy. They argued schools are needed more than housing in the crowded Mid-Wilshire district of the city.

In a Bankruptcy Court hearing Tuesday, the lawyer for the investors who own the hotel said that they had previously rejected the offer by the developer, Casden Properties, because they feared being sued by the school district for breach of contract. A month ago, school district officials and the owners agreed that the district would buy the property to settle a decade of litigation.

Attorney Richard Levin said the investment group Wilshire Center Marketplace has lost every round of its state court battles with the district and that he saw no hope it could win a case that would be characterized as “kids vs. developers.”

Bankruptcy Judge Samuel L. Bufford, however, said he would reject the settlement with the school district if the owners could get a better deal elsewhere. But he postponed his final decision until today. He said he thought there would be no liability for the owners if negotiations on the sale went forward under a federal court order.

Mayor James K. Hahn joined school district officials at a press conference, castigating the developer, Alan Casden, for placing commercial interests ahead of schoolchildren.

Hahn said he thought a school, not housing, would be the best way to honor the memory of Sen. Robert F. Kennedy, who was assassinated at the Ambassador during his 1968 presidential campaign.

“Mr. Casden has plenty of other opportunities to develop in the city,” Hahn said. “I will do everything I can to support the children of Los Angeles.”

Supt. Roy Romer said it would be an outrage to let Casden snatch the 23.5-acre site from the school district.

“He knows we’ve been after this school site for 10 to 12 years, and he came in secretly,” Romer said. “He’s after some gain.”

“He’s squeezing the kids,” said Board of Education President Caprice Young. She said it makes no sense to build housing in the neighborhood, which is one of the nation’s most densely populated and is badly short of classroom space.

The two officials left it unclear, however, what the district’s strategy will be to stop Casden.

“We will not get into a bidding war,” Young said. “We will not be blackmailed.”

The district’s general counsel, Harold J. Kwalwasser, indicated that the ultimate strategy could be to condemn the property, which would bring the Ambassador saga back to where it began in the early 1990s.

The district initially condemned the property when it was owned by an investment group put together by real estate magnate Donald Trump. That thwarted Trump’s plans to erect the world’s tallest building on the hotel site.

The district paid Trump a $48-million deposit on the property, but later decided to build elsewhere.

Trump fought to keep the district’s deposit as compensation for the delays that made his project untenable. By the time the courts ruled in the district’s favor, Trump’s successors couldn’t repay the district, having used the deposit to pay its debt. When the district ordered a debtor’s sale, the owners declared bankruptcy.

Now the district wants the site back because the worsening school shortage has forced it to consider acquiring virtually any large parcel in the city.

Last month, the district agreed to pay the owner at least $76.5 million to settle the case and take possession of the property. The district is also forgiving millions of dollars in interest on its original deposit. Casden is offering $115 million for the property.

Emerging victorious from Tuesday’s court hearing, Casden said his primary interest is to help solve the city’s rental housing crisis, but he declined to elaborate.

“We have no plans for the site,” he said. “We don’t own it. I guess if we have the property, whatever happens, happens.”

Although his lawyer, Dennis B. Arnold, said in court that the property might be large enough for housing and a school, Casden showed little interest in such a plan. He said the businesses in the community do not favor a school.

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Times staff writer Gayle Pollard-Terry contributed to this report.