KOAR bankruptcy threatens city’s redevelopment | TahoeDailyTribune.com

KOAR bankruptcy threatens city’s redevelopment

Michael Schneider

The Park Avenue Project, one of the first major efforts by the Redevelopment Agency, may be in financial trouble resulting from the Embassy Suites Resort bankruptcy.

The Redevelopment Agency may face a 3.2-percent reduction in tax increment funds flowing from the Embassy Suites operation by KOAR LAX Partners, L.P.

To add to the negative financial news, KOAR is attempting to lower the assessed valuation of the hotel from its existing $68 million. If that value drops to $50 million, a figure agency officials say would be a bottom-line value, it would cost the agency $144,000 a year.

KOAR is an acronym for the five senior development partners’ names, Steve Kenninger, Osamu Kaneko, Loren S. Ostrow, Paul R. Alanis and Bruce H. Rothman. KOAR has petitioned the bankruptcy court to revalue the hotel at $42 million.

The agency hopes developers of Park Avenue, including American Ski Company and Trilogy of Vancouver, will make up the agency’s shortfall with credit enhancements for public financing.

KOAR announced Thursday it had filed for Chapter 11 bankruptcy protection in federal court in Los Angeles. The hotel developers also filed for Chapter 11 protection with their Embassy Suites at the Los Angeles International Airport in 1996.

As part of the bankruptcy proceedings with the Lake Tahoe Embassy Suites Hotel, developers have filed an appeal of the assessed valuation of the hotel for fiscal year 1997-98. This is an area of the bankruptcy proceedings with potentially negative financial implications for the city.

The hotel currently is valued at $68 million. The taxes the city receives are based on that figure.

KOAR’s appeal calls for a drop in the value to $42 million, while the Redevelopment Agency believes the court will rule the value to be about $50 million.

Based upon the agency’s $50 million projections, it would lose about $144,000 per year.

Mayor Hal Cole, who serves on the Redevelopment Agency’s board along with the rest of the City Council, said he expects the property tax losses to be detrimental only in the short term. Cole said the taxes will increase once a new hotel owner is in place.

The Embassy Suites is the most significant contributor to the South Tahoe Redevelopment Agency, which is about $65 million in debt, according to Redevelopment Director Jaye Von Klug.

Von Klug said the Chapter 11 filing won’t effect either the Transient Occupancy Tax or the Property Tax Increment the hotel has been contributing to the agency’s debts.

The hotel probably will continue to operate as it does now, without closing, through the bankruptcy proceedings.

“This (a hotel closure) would reduce the value of their security, and eliminate any cash flow potential available to meet outstanding obligations,” Von Klug said, saying the TOT from the hotel is exempt from the jurisdiction of the bankruptcy court.

The agency won’t lose its chunk of the property tax increment funding from the hotel due to El Dorado County’s Teeter Plan. A payment is due to the city in December, but, because of the plan, the county will pay the city regardless if KOAR pays its taxes or not.

The county then keeps the penalties and interest levied on delinquent taxes when the owners eventually redeem the delinquencies, according to Von Klug.

Since KOAR’s construction loan from Mitsui Trust & Banking Co., Ltd. went into default last summer, Von Klug said the bankruptcy raises questions with potential buyers of any municipal bond issue for the Park Avenue Project.

The project, scheduled to break ground next year, would revamp much of the state line area around Park Avenue, including new hotels, an ice rink and a gondola leading to Heavenly Ski Resort.

Redevelopment Agency Chairman Kevin Cole, who also serves on the City Council, said the bankruptcy will not impede redevelopment plans, specifically the upcoming Park Avenue Project.

“Of course we were disappointed to learn of the Chapter 11 by KOAR,” Kevin Cole said. “However, we remain confident that a reorganization plan will be consistent with our program and vision for redevelopment in our city.”

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

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