The limited partnership that owns the Park Manor Hotel near Balboa Park has filed for Chapter 11 reorganization bankruptcy after a disagreement among the partners over how to develop the property and the partnership's inability to secure additional financing.
In contrast to most bankruptcies, Park Manor Hotel Associates Ltd.'s assets far outweigh its liabilities, according to documents filed in U.S. Bankruptcy Court. The partnership that owns the hotel listed assets of $7.3 million and debts of only $4.8 million.
However, a $3.1-million first mortgage was due and payable Dec. 31, and the partnership filed for bankruptcy protection to avoid a probable foreclosure, officials said.
Meanwhile, the limited partners have sued developer Salvatore P. Osio, the general partner, for fraud, breach of contract and unfair business practices.
The suit, filed late last month in Superior Court, claims that the limited partners invested nearly $1.4 million in the six-story, 82-room Park Manor under the assumption that Osio would renovate it and convert the property into a residential retirement hotel at a cost of about $500,000.
The limited partners said in their suit that Osio claimed to have lined up a group of investors who would buy the renovated property for $6 million.
The lawsuit alleges that Osio, without the consent of the limited partners, decided to convert the property into a "four-star" luxury hotel. The cost of that could reach "millions of dollars more than the cost of simply converting it to a residential retirement hotel," the limited partners said in their suit.
Osio, who said last week he plans to countersue the limited partners, tells a different version.
It was Osio, who claims he advanced the partnership $500,000 of his own funds, who planned to buy the property from the limited partners, he said last week.
"I exercised my option to buy the property from the partnership for $6 million," he said.
That option, however, hinged on Osio securing funds to refinance the $4 million in debt owed by the partnership and a $2-million line of credit secured for renovation.
Under the partnership agreement, if the hotel were sold before Dec. 31, 1985, Osio would receive 50% of the profits and the limited partners would receive 50%. If Osio bought the property after 1985, he would receive one-third of the profits.
However, the financing was delayed by what Osio described as problems with logistics.
While he was vacationing in Park City, Utah, over the Christmas holiday, attorneys representing the limited partners apparently contacted the Orange County bank that was providing the refinancing funds.
The limited partners "attempted to get the financing on a different basis for themselves," said Osio. "I don't know the exact details (but) I think they were trying to ace me out."
When he returned to San Diego the second week of January, Osio "found out that the financing had collapsed, partly as a result" of the limited partners' action, he said. The bank, according to Osio, was only a participant, and the loan was actually being arranged by a Newport Beach firm called Belgravia Capital.
"We suspect the delay was beneficial to (the limited partners') interests and their strategy was to improve their position by (extending the option) to this year," Osio said.
The limited partners maintain that they contacted the banker only to "find out what the story was," according to their attorney, Dennis W. Fliehman. "So they (called the bank) to see if the financing was there. The bank told them 'No, we're acting only as a broker . . . we don't know if the deal is going through.' "
Fliehman said he is unsure "if Osio ever had a deal . . . (my clients) were told by the bank that they had no financing."
Two weeks later, the limited partners sued Osio, seeking a return of their investment, 10% interest and their share of the profits if and when the property is sold.
"Our people don't want to wait around for (Osio to) convert it to a luxury hotel. They agreed to a retirement hotel," said Fliehman.
The hotel last week had an occupancy rate of 95%, according to a hotel staffer. The hotel is operated by European Hotels of America.
Although the limited partners filed their suit in Superior Court, Osio maintained that the squabble will be resolved in U.S. Bankruptcy Court.
"That's the forum where we have to voice and litigate our differences," he said. Osio added that he still wants to buy the hotel from the limited partners and plans to make an offer, arrange financing and "let the court referee who's entitled to what."
Osio recently made news in San Diego business circles for another of his ventures. He was the lead investor in a group that last year tried to buy the Bank of La Costa from its parent company, BSD Bancorp.