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Future of city redevelopment pondered

Michael Schneider

Thomas Smith, general partner of KOAR-Tahoe Partners, L.P., the group which built and operates the state line Embassy Suites, claimed in a court deposition that if his hotel is forced to file bankruptcy, the action would likely end any further redevelopment projects for the foreseeable future.

Council member Kevin Cole agreed it would certainly slow things down should the hotel file bankruptcy. He said it might not be insurmountable, but something the city would have to explain to those who could potentially purchase redevelopment bonds.

Council member Judy Brown said she didn’t agree with Smith.

KOAR, which is an acronym for the five senior partners’ names, Steve Kenninger, Osamu Kaneko, Loren S. Ostrow, Paul R. Alanis and Bruce H. Rothman, has filed suit to block the bank which provided its construction loan from selling the debt.

Mitsui Trust & Banking Co. Ltd.’s Los Angeles office provided the developers with up to a $57 million construction loan which matured last summer.

In Thomas’ statement to the El Dorado Superior Court, he claimed that, entering 1997, KOAR thought it would be able to refinance the loan with a 36-month extension.

“The rough winter of 1997 made it clear KOAR would be unable to satisfy the debt service ratio needed for the 36-month extension,” Thomas said.

Even before the loan matured on July 31, 1997, KOAR had been in contact with Mitsui, seeking alternatives to defaulting on the loan.

Thomas pointed out in his deposition that Kenninger and company had made every interest payment up to the time when the loan matured.

Attorneys for Mitsui claim the July 1997 interest payment was the last the bank received.

As a basis for the lawsuit, KOAR claims Kaneko was told in a phone conversation with Mitsui representatives that the developers would be given an opportunity to attempt a conversion of half the hotel’s suites to time shares.

Kaneko said, in his declaration before the court, that a vice president and manager of Mitsui told him the Los Angeles bank office had received permission from its superiors in Tokyo to proceed with the conversion process.

KOAR proposed to sell the units to Signature Resorts Inc., Kenninger and Kaneko’s other entity, over a five- or six-year period and use the $35 million in proceeds to make a large dent in the loan.

Although representatives from Mitsui did contact KOAR asking for information on the proposed conversion, it was stated in that letter to KOAR that the request should not been construed as an endorsement of the conversion process.

According to Mitsui attorneys, with a borrower which had not paid interest in six months, and had been pocketing the interest payments, the bank had no other choice but to seek a third party to take over the loan. On Dec. 3, 1997, the bank informed KOAR it had filed a notice of default on the loan.

According to court documents, KOAR asked for preferential treatment regarding sale of the loan – it wanted first bid on the note for the $53 million it owed Mitsui. KOAR alleges Mitsui granted this request.

On Dec. 18, 1997, KOAR learned Mitsui had hired Secured Capitol Corporation to sell the loan. The corporation informed KOAR it could bid on the loan, but rather than preferential treatment, KOAR would face regulations more strict than other unidentified bidders such as having to make an offer 2 percent higher than the highest bidder’s just for consideration.

When KOAR learned that Secured Capitol was trying to sell the note Jan. 9, and that it was not authorized to receive a copy of the note package circulated to other potential buyers, Thomas said it became clear that KOAR was not receiving the preferential treatment it claimed Mitsui promised.

Attorneys for Mitsui emphatically denied that KOAR was ever promised preferential treatment and KOAR submitted no documents in the court file which would lead to this conclusion.

Kaneko did offer an explanation why there are no documents to back up KOAR’s claims of verbal commitments regarding both the bank’s approval of the time-share process and its claim of preferred treatment in the bidding process.

He said it would have been inappropriate and damaging to his reputation with Japanese banks to insist on written approval as, in his previous years of dealing with the banks, he had never required such documentation as is customary.

On the morning of Jan. 15, KOAR received a fax from Secured Capitol telling the group it had until 3 p.m. that day to bid on the loan.

KOAR sent a letter objecting to the process and filed suit in El Dorado Superior Court.

The case will be heard before Judge Suzanne Kingsbury, who granted a restraining order at KOAR’s request stopping Mitsui from selling the note until each side has the opportunity to present its case in court March 2.

Tahoe Daily Tribune E-mail: tribune@tahoe.com

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