June 14–The developer of Riverside’s Hyatt Place hotel has filed for Chapter 11 bankruptcy protection, a maneuver intended to block the city’s request that a court foreclose on the downtown hotel.
The 125-room hotel has been open a little more than two years, but the honeymoon has long been over between Siavash Barmand, whose Bay-area company MetroPacific Properties built the Hyatt, and the city, which loaned him $20 million to do it.
Both sides have raised the stakes with their latest legal actions, which could result in the hotel changing owners or brands.
Barmand’s company, which does business here as MetroRiverside, filed in federal bankruptcy court on Thursday. Barmand said he’s made the required debt payments to the city and the filing does not mean he’s in financial trouble.
A Chapter 11 filing seeks to reorganize debt while the business maintains control of its assets.
It’s a response to the city’s lawsuit, filed in May, that asks a judge to appoint a receiver to take control of the hotel and sell it. According to court records, the city seeks to recoup the $19.1 million it is owed after MetroRiverside defaulted on their agreement by letting a reserve fund fall below a required balance.
The lawsuit names the developer, not the parent company of Hyatt.
Riverside spokesman Phil Pitchford said the city’s attorneys would not comment on pending litigation. Deputy Development Director Emilio Ramirez said the city’s intention is for the hotel to be owned privately and not by Riverside.
Loyola Law School of Los Angeles professor Dan Schechter said Chapter 11 filings in the face of such lawsuits are routine.
“Chapter 11 can slow down the foreclosure proceeding. The filing creates an automatic stay,” Schechter said.
ROCKY RELATIONSHIP
The city’s relationship with Barmand began in 2006 when he signed an agreement to develop a hotel as well as hundreds of housing units and thousands of square feet of retail space. The project, down the street from the Fox Performing Arts Center, was intended to be part of a revitalized downtown.
It was only supposed to take a few years to complete, but a lengthy approval process, a battle with a preservation group over a historic building and the recession intervened. Only the hotel has been built.
In 2010, the city agreed to sell tax-exempt federal stimulus bonds and loan MetroRiverside the money when Barmand couldn’t get private financing for the hotel.
The Hyatt opened in 2012, but in the meantime city officials began a project to renovate the convention center a half-block away, closing it just months after the hotel’s launch.
In 2013, Barmand sued the city for breach of contract, arguing that he was never told the center would shut down for the renovation. In October, a judge sided with the city in that case, but Barmand still could appeal.
The latest chapter began last month when the city asked the court to foreclose on the hotel, have it sold and repay the outstanding amount of the loan. MetroRiverside breached the loan agreement, the city argued, when it let a reserve account fall below a required $750,000 for more than 30 days.
Barmand said lost business from the convention center’s closure forced him to use reserve funds to make debt payments to the city. He doesn’t want to simply replenish the account, he said, because “We believe the city’s not acting in good faith.”
Filing for Chapter 11 bankruptcy does not mean the hotel or its owner are in financial straits, Barmand said.
OTHER ISSUES
In the wake of Barmand’s suit, the city wanted to find another developer for the city-owned Stalder building, a historic property that was to be part of MetroRiverside’s original project. Barmand said he and the city were negotiating, but talks broke off.
He believes the city wants to take the hotel so its parking lot can be developed but without replacement parking as originally agreed.
Having to pay for parking would hurt the hotel, Barmand said.
Ramirez, the deputy development director, said the original contract required MetroRiverside to make payments for the Stalder property. Not only did the company fail to pay, but Barmand declined to sign an agreement allowing another developer to take over the project, Ramirez said.
The new developer plans about 20,000 square feet of retail space and 155 housing units, very similar to Barmand’s plans, Ramirez said.
As for the hotel, a foreclosure and sale would mean a new owner, and former Riverside hotelier Tom Donahue said a change in branding is not uncommon following a bankruptcy.
Ownership changes don’t generally disrupt a hotel’s business, but losing the backing of a chain like Hyatt could hurt, said Donahue, who was general manager of the downtown Marriott hotel from 2004 to 2012.
The Hyatt was an important addition to the downtown market, Donahue said. He also is concerned about how the dispute will affect the development community, he said.
“My hope is that they can sit down and work it out and we can move forward and focus on how we can bring business here,” Donahue said.
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