In the latest attempt to save the troubled U.S. Grant Hotel, Home Federal Savings & Loan would advance it more than $3.3 million in cash and agree not to foreclose on the downtown landmark before January, 1991.
Those are the terms of a reorganization plan filed late Thursday by the hotel's bankrupt owners, U.S. Grant Hotel Associates, in U.S. Bankruptcy Court in San Diego. Home Federal would be given possession of the hotel's parking garage and a clear option to purchase the entire hotel after January, 1991, once the reorganization plan is approved by the bankruptcy court.
Home Federal attorney Victor Vilaplana said Friday that the S&L was "generally pleased" that the reorganization plan was filed but cautioned that Home Federal disputes several points of the proposal, which he would not specify.
Vilaplana said taking possession of the hotel's garage, its 225 parking spaces and 13,000 square feet of retail space would give Home Federal better security that there would be no "backsliding" by the hotel owner about resolving Home Federal's overdue loan.
"Come January, 1991, we want to be assured that either our debt is paid or we own the hotel," Vilaplana said. Until 1991 at least, the hotel would be guaranteed the use of the parking spaces, according to the reorganization proposal.
The hotel has operated at a loss ever since it reopened in December, 1985, after a four-year, $50-million refurbishing. Owed more than $40 million in loan principal and back interest, Home Federal began foreclosure proceedings on the U.S. Grant in September, 1987, after the hotel failed to make payments on its $32-million second-mortgage loan.
The Grant averted a Feb. 24 foreclosure sale when, on Feb. 22, the hotel owners filed for protection under Chapter 11 of the federal bankruptcy code.
To keep the hotel operating and thereby protect the value of its loan security, Home Federal has advanced $670,000 in interim loans to the Grant since the bankruptcy filing.
According to hotel attorney Gerald Sims, the $3.3-million "plan enabling loan" proposed in the reorganization plan would be used by the hotel to pay off taxes and general and administrative debts, overdue loan payments to first-mortgage holder Joseph Drown Foundation, as well as the funds advanced by Home Federal since Feb. 22.
But Home Federal would have to come up with additional funds to meet the hotel's future operating losses, which attorneys on both sides expect to continue at least over the next several months. The hotel has lost an average of about $50,000 a month since the Chapter 11 filing. In addition, it has not made its $450,000 monthly loan payment to Home Federal since February, 1987.
Under terms of the reorganization plan, all the monies owed to Home Federal would be recast in a single loan, with the fair market value of the garage subtracted from the total owed, Vilaplana said. The value of the garage has not yet been determined, he said.
Both sides are hopeful that the reduction of the Grant's debt load, combined with the opening of the San Diego Convention Center in 1990 and resulting growth in the hotel room demand, will lift the Grant out of its financial problems.
Hotel manager Chris Venner said Friday that the hotel had its best month ever in October, chalking up $1 million in sales and a 72% occupancy rate. The Grant's occupancy rate for the full year ending in December will come in at "the mid-50s," percentage-wise, up from a 48% occupancy rate in 1987 and a 37% occupancy rate in 1986, Venner said.
The overall occupancy rate at San Diego-area hotels over the first eight months of 1988 was 73%, according to a survey by Laventhol & Horwath of San Diego.
The reorganization plan must be voted on by creditors and confirmed by U.S. Bankruptcy Judge Louise Malugen by Feb. 28, according to a stipulation agreed to in August by Home Federal and the hotel owners. A hearing is scheduled for Dec. 6.
The disclosure statement filed along with the plan painted a picture of a hotel drowning in a $58-million debt while having a market value of only $27 million. In recent months, the hotel has held discussions with 15 hotel operators, each of whom was scared away by the hotel's high debt, according to the reorganization plan.
Last month, Home Federal and attorneys representing several U.S. Grant limited-partnership investors reached a separate agreement whereby Home Federal agreed not to foreclose on the hotel until 1991. An earlier foreclosure would have meant that the investors would have had to repay to the government the tax benefits resulting from their investment.
In exchange, the investors agreed to drop Home Federal from their December, 1987, lawsuit. That suit alleges that Sybedon Corp., which is the hotel's general partner, along with Home Federal, Prudential Bache Securities and other parties committed securities fraud, misrepresentation and professional malpractice in connection with the $30-million offering of limited partnership investments in the hotel.