An investor in the troubled U.S. Grant Hotel in downtown San Diego has filed a class-action lawsuit alleging that the hotel's general partner and related parties used fraud, securities violations, breach of fiduciary duty and misrepresention to attract $30 million in investor funds.
In a complaint filed in U.S. District Court on Wednesday, limited partner Robert Lubin of San Diego named New York-based general partner Sybedon Corp. and Prudential-Bache Securities, which underwrote and sold investment units of up to $100,000 each to 400 limited partner investors, as defendants. Many of those investors are San Diegans.
In the suit prepared by San Diego attorney Michael Aguirre, Lubin alleged that the investment prospectus covering the offering contained several misrepresentations and omissions. Among them, the suit alleged, was an overstatement of the Grant's fair-market value upon the completion. The prospectus said the hotel would be worth $75 million but now is worth only about $35 million, the suit said.
The suit also accuses Sybedon and other parties of failing to advise investors that the high cost of the hotel's renovation could make it difficult for it to meet its debt obligations from hotel receipts. Additionally, the suit says, Prudential-Bache's investment offering should have been publicly registered with the Securities and Exchange Commission.
For the Record Hotel Firm Not a Party to U.S. Grant Lawsuit
Los Angeles Times Friday December 25, 1987 San Diego County Edition Part 1 Page 2 Column 6 Metro Desk 1 inches; 29 words Type of Material: Correction
In Thursday's edition of The Times, a story about a lawsuit involving the U.S. Grant Hotel stated incorrectly that Atlas Hotels was named as a defendant in the suit. Actually, they are not a party to the suit.
Also named in the suit were Christopher Sickels, a San Diego developer who sold the historic hotel to Sybedon in 1984; Atlas Hotels, a San Diego-based hotel company that formerly managed the Grant, as well as law and accounting firms connected to the Sybedon group's acquisition.
Sybedon and Atlas Hotels executives were unavailable for comment after the suit was filed late Wednesday afternoon.
The Sybedon-led group, U.S. Grant Hotel Partnership, acquired the 11-story, 283-room hotel from Sickels for $79 million in December, 1984, a deal financed in part with the $30 million raised through a Prudential-Bache private offering of investment units to investors such as Lubin.
Reopened in December, 1985, after a four-year, $64-million refurbishment, the Grant lost $9 million through September, 1987, the suit alleges. The hotel owners have been in default since January on a $32-million second mortgage owed to Home Federal Savings and are also behind on payments of property taxes and on accounts with vendors.
Home Federal, which filed a notice of default on the hotel in September, could set a January date for a foreclosure sale on Tuesday. Some observers, however, expect Sybedon to file for protection under federal bankruptcy laws rather than allow the hotel to be sold at auction.
The suit also alleges that the prospectus failed to disclose a potential conflict of interest on the part of Atlas Hotels because Atlas was managing other San Diego hotels at the time it was running the Grant.
On Monday, the city asked a Superior Court judge to improve its standing among the hotel's creditors to improve its chances of recovering its $6-million loan in the event the hotel is sold at foreclosure auction.
The loan, an Urban Development Action Grant that was extended by the city in 1984, is weakly secured because it is junior to more than $37 million in additional debt. If the hotel brings only $35 million at foreclosure auction, the city's loan would not be paid off.