The Balboa Inn was an elegant landmark in the 1930s and '40s when movie stars such as Gary Cooper, Humphrey Bogart and Cary Grant pulled up in their luxury cars, danced at the old Rendezvous Ballroom next door, then slumbered in their rooms at the inn.
The two-story hotel and its tower also served as a beacon along the Newport Beach coast for rum-runners bringing in illegal liquor during Prohibition. In its walls, workers on a remodeling job once found a stash of counterfeit money.
For the Record
Los Angeles Times Friday April 10, 1987 Home Edition Sports Part 3 Page 7 Column 3 Sports Desk 3 inches; 94 words Type of Material: Correction
In a story on the Balboa Inn, which was part of the report on Kareem Abdul-Jabbar's financial problems in Wednesday's editions, a sentence dealing with the money spent on the hotel should have read: Instead, (the hotel) became a sinkhole, into which the partnership threw away the $4.2-million purchase price and nearly $2.55 million more in renovation work, including cost overruns.
Another sentence in the same story, on the finding of a possible buyer for the hotel, should have read: The Merlin group found First Wellington Las Casitas Associates, Inc., in Costa Mesa, which was assembling a hotel chain and agreed in November to buy the Balboa Inn for $5.75 million.
But despite extensive renovation, the Balboa Inn apparently has seen its best days.
Far from the freeways and lacking adequate parking, the inn is expensive to operate. No one has learned that lesson more than the ninth owner in its 58-year history--the limited partnership headed by professional basketball stars Kareem Abdul-Jabbar of the Los Angeles Lakers and Ralph Sampson of the Houston Rockets.
The 34-room structure at the foot of the Balboa Pier was to have been the jewel in the crown of hotel and restaurant investments that one-time business manager Thomas M. Collins was putting together with borrowed money for himself and 10 of his clients, including Abdul-Jabbar, Sampson and six other current or former professional basketball players.
Instead, it became a sinkhole in which the partnership lost the $4.2-million purchase price and nearly $2.55 million more in cost over-runs for the renovation. In addition, the partners now have to pay taxes on $859,000 that they had taken in 1985 as tax credits related to the project.
Owing about $5.7 million, the partnership, Balboa Improvements Ltd., filed a petition in U.S. Bankruptcy Court in Santa Ana Oct. 20 to reorganize its debts. The debts did not include an unsecured $1.8-million loan the partners, as individuals, had taken out for down payment on the property. The hotel, the partnership's only significant asset, was never appraised at more than $6.8 million, according to partnership financial records.
Of the ventures that went sour for the athletes, the hotel was one of three Orange County properties providing the major headache for the investors. The neighboring Bank Restaurant, which has never opened, carried a $1.9-million debt last fall, including the $1.2-million purchase price. The Inn at Laguna in Laguna Beach, which went into bankruptcy last month, carries a $6.3-million debt.
On Feb. 19, the Balboa Inn's bankruptcy petition was converted into a liquidation proceeding, paving the way for a foreclosure sale 12 days later.
The hotel failed to bring the minimum bid of $2.74 million at the March 3 foreclosure sale, and the property reverted to previous owners Chien Shan (Sherman) Wang and his wife, Huei Yu Wang.
"It's a gorgeous structure with a wonderful view," a former hotel employee said. "How could 11 limited partners allow this to slip through their fingers?"
That the building went to a foreclosure sale was "a tragedy that never should have happened," maintains John Glenn Mangun, owner of Merlin Management Ltd., a Huntington Beach firm hired by the partnership last fall to find a buyer.
The Merlin firm founded First Wellington Las Casitas Associates Inc. in Costa Mesa, which was assembling a hotel chain and agreed in November to buy the Balboa Inn for $5.75 million. Even though the deal would have been up to the bankruptcy court to approve, a majority of the partners rejected it.
"The limited partners may have gotten greedy," Mangun said. "They were hoping for a higher price because a Texas investor was talking about bailing them out."
They also wanted to avoid losing their income tax benefits and paying taxes on their 1985 write-offs, he said.
First Wellington came back with a second proposal Feb. 4 that would have allowed the limited partners to recoup most of their losses and stay on as part owners until 1991 when their tax benefits would have been fully realized. Abdul-Jabbar and Sampson, for instance, had written off more than $191,000 each but those write-offs required that they keep the property for five years.
David Semas of First Wellington said he was never able to get through to Abdul-Jabbar's lawyers, to partnership operators or to the bankruptcy lawyer for the partnership, Michael J. Bartlett of Laguna Hills.
"We'd keep calling and leaving messages, but nobody would get back to us," Semas said.
According to Leonard Armato, one of Abdul-Jabbar's lawyers who also acts as his spokesman, however, the Balboa Inn, was a "top priority" for Abdul-Jabbar's lawyers, and any telephone calls on the property were acted on "immediately" by handling callers directly or referring them to Coldwell Banker, the broker and marketing agent for the property.
The second proposal was sent to the partnership's on-site manager and to lawyers for each of the limited partners, according to a written statement filed in bankruptcy court by John H. Malmrose, another of Abdul-Jabbar's lawyers.