How are time shares possible at Embassy Suites?
At the direction of the City Council, the city attorney has prepared an ordinance which would create an exception to the present moratorium on time-share conversions.
The city put a moratorium on time shares until March of 2003, fearing a market saturation in the Tahoe area. The ordinance would allow for the development rights to 188 Park Avenue time shares to be transferred to the Embassy Suites Hotel.
Why the new ordinance?
The partnership which built the state line Embassy Suites, KOAR, did so with a $52 million loan from Mitsui Trust and Banking Co. Ltd and $24 million in other equity.
On July 31, the loan from Mitsui matured and, because of a drop in the hotel’s value due to an overall decline in the tourism industry in Tahoe, it was not refinanced.
KOAR’s members and attorneys, not wanting to declare bankruptcy and let the hotel fall into receivership, burned the midnight oil in an attempt to find a way to repay Mitsui and stay in business.
“We spent the four-day (Thanksgiving) holiday with pencils and calculators,” said KOAR attorney Tim Tosta of the procedure which led to KOAR’s plan to convert 188 units at Embassy to time shares.
KOAR would then use the proceeds from the time-share sales to pay the bulk of what is owed to Mitsui.
The city view
In order for the city to consider repealing its moratorium on time shares, KOAR must demonstrate to the city that South Lake Tahoe will not lose money in the conversion. The conversion must be “revenue neutral.”
Although the city would be out the Transient Occupancy Taxes from 188 expensive hotel suites, the time shares would allow the city to reap more property taxes. However, the city would still lose money because room tax brings in greater revenue.
The KOAR plan
KOAR, with the help of the city’s financial advisor, Mark Northcross, formulated a complicated system indicating the city can allow the time shares at Embassy with mitigation for any losses it might incur.
KOAR will first offer the city a quick fix of a $1.3 million Letter of Credit, possibly drawn by a top-rated bank, which the partnership said is as good as cash.
Next, KOAR will draw another bank note for the city worth $1.7 million after Signature Resorts, the time-share company with which one of KOAR’s founding members is employed, buys 81 Embassy units from KOAR.
This process is expected to take about six years.
Lastly, the stalled Park Avenue Project will receive a Letter of Credit, not available until Jan. 1, 2000 at the earliest, from Signature through the city’s Redevelopment Agency for $2.9 million. KOAR proposes this be used for start-up costs.
All but $900,000 of the note is proposed for the future parking garage in the redevelopment area, leaving the city to scrounge up another $3.5 million in municipal bond money.
The rest of the money is slated for the proposed ice rink.
The city will have to pay back the $2.9 million through Mello-Roos taxes on the new time shares.
Northcross assured the City Council that none of the agency’s money would be used in this process as it would only be acting as a pass-through lender for Signature.
Still to do?
Tonight is the first reading amending the time-share ordinance to allow the transfer of previously approved time-share development rights.
If the council decides to approve the ordinance, it will move to a second reading at a future meeting.
If it passes that second public hearing, the city will be free to allow the KOAR plan, if Mitsui allows an extension for KOAR on foreclosure.
KOAR partner Steve Kenninger said Mitsui is anxiously watching the city’s proceedings as the bank plans its next move.
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