KOAR files suit against construction lender
KOAR-Tahoe Partners, L.P., the group that owns Embassy Suites Resort at the state line, has filed suit against the Japanese bank that provided its construction loan.
KOAR filed the lawsuit Friday in El Dorado Superior Court when the partners learned of what they believe to be were unfair business practices by The Mitsui Trust & Banking Company, Ltd., Marty Flannes, KOAR attorney said.
Flannes said KOAR learned at the end of last month that the bank was trying to sell KOAR’s loan to a third party.
Arguments from KOAR and Mitsui will be heard March 2 before El Dorado County Superior Court Judge Suzanne Kingsbury.
In the meantime, Kingsbury on Tuesday issued an order prohibiting Mitsui from entering into conduct to sell the loan, which matured last summer.
The order is in effect until each side gets its day in court.
Flannes addressed the city council on the issue at Tuesday night’s meeting saying legal action was taken by KOAR to ensure its right to go through the conversion process.
Flannes said it was KOAR’s understanding that it would have the opportunity to find a buyer, presumably Signature Resorts Inc., which would convert the property to time shares and slowly buy them from KOAR with KOAR using the proceeds to pay the bank loan.
“Last week we found out the bank was doing things inconsistent with [my client’s] contract,” Flannes said of the bank’s attempt to sell more than half of $52 million loan. Whoever owns more than 50 percent of the interests in the hotel controls it, he said.
The key element of the lawsuit, KOAR alleges, is its right to have sufficient time to complete the approval process for time-share conversion.
KOAR opened the hotel more than six years ago after building it with $24 million in private funds and $52 million from Mitsui.
From the beginning, the Embassy Suites failed to live up to room occupancy expectations, likely due to an overall decline during the 1990s in the South Shore’s room occupancy and gaming wins. This didn’t allow KOAR the cash flow to pay off it’s seven-year loan. The hotel lost so much of its original value that Mitsui, after reassessing that value, refused to refinance the loan over a longer time period last July and threatened foreclosure.
Despite the loan going into default last summer, Mitsui, according to KOAR representatives, had been waiting to see what happened with KOAR’s attempt to sell half the hotel’s units to a leading time-share company.
The city council amended its five-year ban on time shares to allow for the Embassy conversion last month. It was merely enabling legislation as KOAR would still have to go before the council for individual approval.
KOAR had been optimistic regarding the prospects of paying the loan within six years should the council approve its proposal.
Flannes said he didn’t know if Mitsui’s recent actions have anything to do with the crisis in Asia’s financial markets but said that was one aspect on which KOAR would focus over the next five weeks as the partnership and its attorneys prepare for court.
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