City to consider new KOAR proposal
After more than a month of meetings involving the city and KOAR/Signature properties, attorneys for KOAR believe they’ve found a “win, win, win” solution to the Embassy Suites bankruptcy problem which benefits the city, KOAR and the bank that has threatened to foreclose on the hotel.
The $52 million loan KOAR received from Mitsui Bank matured on July 31 and is now in default, meaning the bank could foreclose and require the payment of monies owed, forcing the partnership into bankruptcy.
Timothy Tosta, attorney for KOAR, said the solution, which will be presented to the South Lake Tahoe City Council tonight, assures revenue neutrality, a factor which the city said it must have to consider the project.
On Monday afternoon City Attorney Dennis Crabb released his report on the negotiations with KOAR and Signature in which an amendment, contingent upon acceptance of KOAR’s presentation, is proposed to the city’s time-share conversion moratorium set to expire in 2003, allowing the conversion.
Crabb’s report concludes that the new proposal achieves the goals the city set for potential approval, revenue neutrality, Park Avenue approval and general public benefit.
To avoid foreclosure, KOAR has proposed to sell 188 of the 400 suites in the hotel to Signature Resorts Inc. for $185,000 each. KOAR would then use the proceeds to pay the bulk of monies owed to Mitsui and Signature would sell the units as time shares after putting $8,000 in renovations into each suite.
KOAR, under this proposal, would lose 67 to 75 percent of its original $24 million investment, which, according to Crabb’s report, is better for the investors than being wiped out entirely.
The proposal not only would break the moratorium on conversion of rentals to time shares in the city, it would also force the city to lose money in Transient Occupancy Taxes from the rentals of the 188 rooms.
Tosta said KOAR’s solution would neutralize the revenue lost by the city. This can be offset by Signature delivering two letters of credit at closing in the total amount of $3 million from NationsBank.
Mark Northcross, of Project Finance Associates and advisor to the city, said NationsBank’s LOCs are reputable as it is one of the largest banks in the country.
Crabb’s report said this money can be used either to defease bonds or purchase an investment product to address the post 2028 impact when the Redevelopment Agency expires.
City Council member Kevin Cole, who was on the council subcommittee regarding this issue, said he believes the new KOAR plan will benefit all parties involved.
Cole said at the Oct. 29 meeting, when the proposal was first heard before the public, if the city does nothing, it will lose about $150,000 per year as the hotel will be reassessed and its value will go down, forcing its property taxes down.
If the city allows the hotel to convert partly to time shares without mitigating room tax losses, it will lose about $200,000 per year.
But, said Cole, if the city allows the conversion with room tax mitigation, the city will lose nothing.
Currently the hotel provides the city’s Redevelopment Agency with about 50 percent of its TOT. Tosta said KOAR’s proposal would also benefit the Park Avenue Project, the next proposed phase in the city’s redevelopment plan.
“From the meeting I attended, it meets our criteria,” said Cole of the KOAR proposal.
Park Avenue construction should start by the spring of 1999, later than originally expected. Cole said the council decided to abandon original plans to rush the project and now plans to “just do it right and give ourselves enough time.”
Crabb warned in his conclusion that whether or not the proposal gains support from the Park Avenue developers remains to be seen.
— Also on the council agenda is another closed session regarding the appointment of a new city attorney.
City Clerk Angela Peterson said the council met with the three top candidates last week and has directed the consulting group in charge of the search to enter into negotiations with one prospective replacement for Dennis Crabb, longtime city attorney.
Peterson said she hopes the council will be able to announce something regarding the search at tonight’s meeting.
Who: The South Lake Tahoe City Council
When: Tonight at 6 p.m. (Redevelopment Agency at 4 p.m.)
Where: Council Chambers at 1900 Lake Tahoe Boulevard
What: Embassy Suites’ proposed time-share conversion
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