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Bankruptcy Fears Avert U.S. Grant Loan Deal

October 27, 1987|RALPH FRAMMOLINO | Times Staff Writer

Advised that the U.S. Grant Hotel is headed for bankruptcy, the San Diego City Council on Monday voted unanimously not to make any concessions on a government loan that would have allowed the hotel's owners to arrange for an emergency infusion of $1 million from a private lender.

Council members voted against the loan concessions, requested by Sybedon Corp. of New York, after huddling for 20 minutes in closed session to hear a report from bankruptcy attorneys hired by the city to study the Grant's financial status.

"I think the council feels, and bankruptcy counsel feels, that it is highly likely that the Grant Hotel will go into bankruptcy one way or another, that it is only a matter of time," City Atty. John Witt said.

"I think the overall feeling was there's no need to do anything that's going to postpone the inevitable. If the hotel . . . is going to be saved, it has to be saved through the bankruptcy process. The feeling was there was no sense to further jeopardize the city and its taxpayers at this point."

Stunned by Rejection

Representatives from Sybedon, appearing stunned by the council's swift rejection of their plea for help, hastily left Monday's meeting and offered little comment.

"We're going to have to study it," Sybedon President Ed Glickman said when asked what he would do now.

Sybedon officials were asking council members to subordinate a $6-million government loan, made to the U.S. Grant in December, 1984, so they could arrange for a $1-million loan from Home Federal Savings to keep the hotel afloat until more money could be raised. The $1 million would have been tacked onto an existing $32-million mortgage that Home Federal has on the property.

But, for that to happen, the concession would have moved the city $1 million further back in the line of creditors if the Grant went under and had to be sold off to pay debts.

Council members decided they didn't want to take that risk.

Councilwoman Celia Ballesteros, whose district includes downtown, said she voted against the concession because the $1 million would only keep the hotel going for another month or two. She said she didn't want to "put public money at greater risk."

"I think it's a game of hardball," she said. "Who is going to blink first? The city or somebody else?"

Line Forming

Mayor Maureen O'Connor said the council's vote indicates that the hotel's creditors are jockeying for position in the face of a likely bankruptcy.

"Everybody's now looking out to protect their positions," she said. "We are going to be a creditor like everybody else."

For years, financial problems have plagued the Grant, which is on Broadway across from Horton Plaza and between 3rd and 4th avenues--kitty-corner to City Hall.

San Diego developer Christopher Sickels bought the dilapidated hotel in 1979 and planned a $10-million to $15-million cosmetic refurbishing. But the structure was in such bad shape, he ended up spending $64 million for a top-to-bottom rehabilitation.

Faced with the rising costs, Sickels arranged for the $6-million loan from the city and eventually sold the property to Sybedon Corp., a firm that specializes in historic rehabilitations of large hotels.

The company bought the hotel for $79 million in 1984, and financed part of the purchase by selling 300 partnership shares at $100,000 each. In asking the city for the concession, Sybedon officials estimated the hotel would now sell for between $30 million and $35 million.

Off to Slow Start

During its first year of operation, the Grant got off to an abysmal start. Its average occupancy was 40%, way off from the projected 60%. Atlas Hotels, its operator, quit in November and Sybedon has been looking for a new firm to run the Grant ever since.

Meanwhile, Sybedon has not made mortgage payments to Home Federal since February, and the company was $2.8 million in arrears when the savings institution filed a notice of default in late September. The Grant failed to pay a $259,000 property tax bill in April, and has laid off one-third of its staff since it opened. It has stopped paying some of its suppliers since June.

Last week, hotel management closed the Garden Room restaurant and discontinued room service to 60% of the hotel.

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