By Lori Weisberg
Originally published May 26, 2011
The upscale Sè San Diego, mired in bankruptcy for nearly a year, has been sold for $49 million to Kimpton Hotels, a well-known operator of boutique properties throughout the U.S.
Proceeds from the sale, approved in U.S. Bankruptcy Court this week, will fall far short of what is owed not only to the original lender but also to a number of creditors, including the construction company and sub-contractors who worked on the $150 million project.
The debt owed by the owner, 5th Avenue Partners, was estimated to be between $50 million and $100 million when it filed for bankruptcy in June of last year. At the time, the company owed its German-based lender, WestLB, about $73 million.
When the hotel sale went to auction earlier this week, there were no other prospective buyers who outbid Kimpton, which also operates the Hotel Solamar in downtown San Diego.
The price paid for the Sè is clearly in line with recent purchases of high-profile properties in San Diego, including the 258-room W hotel, which recently sold for $56 million. Included in the sale are the hotel's 23 unsold condominium units and the attached House of Blues.
"The fact that it includes condos is a big plus for the buyer," said Alean Reay, founder of Atlas Hospitality Group. "And with a company like Kimpton that’s extremely well known in the boutique hotel brand, they can add tremendous value because they have a good following for their hotels in San Francisco, Los Angeles and the East coast.
"Eighteen months ago, I would have said $49 million is a very high price but today it’s a fair number and over the long term it’s a great investment for Kimpton.
Kimpton Hotels declined Thursday to comment on the acquisition.
The hotel sale is expected to close within the next week, but distribution of the proceeds remains a hotly contested issue, acknowledge attorneys representing the owner and the creditors.
Although $21 million was set aside for those holding liens against 5th Avenue Partners, that figure could change depending on the outcome of litigation by a number of creditors seeking reimbursement. Among those trying to recoup money is Highland Partnership, the general contractor on the Se hotel project.
"We are pleased that there is a pot of cash available to those creditors who will be able to establish that their liens have priority," said attorney Ali M.M. Mojdehi, who represents the creditors committee. "The outlook for creditors without liens is not bright, given the magnitude of secured bank debt in this case."
Attorney Marc Winthrop, who represents 5th Avenue Partners, explained that for now, WestLB is entitled to roughly $28 million, which represents the balance of funds beyond the $21 million being held in escrow. Also still to be paid are back hotel room and property taxes owed prior to the filing of bankruptcy, Winthrop said.
"The owner of the property borrowed a lot of money from WestLB to build the hotel," Winthrop said. "The contractors are entitled under state law to file liens if they’re not paid, and there are a number of mechanics liens by the general contractor and various trades and suppliers who believe that their liens are ahead of those of the bank, and that’s where the issue really comes up.
"We know that the $49 million will not pay off the $73 million (owed the lender), so for the workers with liens, their only hope of recovery is that their liens are ahead of the bank's."
Source: SignOnSanDiego
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