May 30, 2012--FORT WORTH -- A bankruptcy judge heard final arguments Tuesday about a legal squabble among lenders over the financially troubled Sheraton Fort Worth Hotel and told attorneys that he needs some time before he rules.

No matter what U.S. Bankruptcy Judge D. Michael Lynn decides, it's clear that the 429-room downtown hotel will go on the block to settle millions of dollars of debt.

At the end of the hearing, Lynn told the attorneys for the hotel's owners, Vestin Realty and 1701 Commerce Llc., that if they happen to run across $45 million in the coming days, "I could think of a good use for it. It's just a thought."

Lynn was referring to the amount owed to Dougherty Funding in Minneapolis in loans made to the Presidio Hotel Group in 2007 to buy and refurbish the hotel property.

Dougherty filed the motions, asking that a bankruptcy stay be lifted so it can foreclose on the property and that the case be dismissed because 1701 Commerce filed it in bad faith.

Presidio also borrowed $11.8 million from Vestin Realty in Las Vegas in 2008. The two lenders operated under an intercreditor agreement that protected lien positions and made Dougherty senior lender and Vestin junior lender. The lenders have been entwined in a legal battle in state District Court and Bankruptcy Court since Presidio defaulted on the loans Dec. 31.

Presidio, not wanting to face a bankruptcy or foreclosure because it was trying to sell the hotel, deeded the property in January to 1701 Commerce, a group set up by Vestin to transfer loan documents. Vestin tried to foreclose on the property first, which is why Presidio deeded the property to it and not Dougherty.

Dougherty's attorneys argue that Vestin violated the intercreditor agreement and operated in bad faith by taking title to the property "in the dead of the night."

In its reorganization plan, 1701 Commerce said it intends to pay Dougherty over the next five years, or sooner, when the property is sold. Other creditors, including about a half-dozen Tarrant County companies, would also be paid over time, court filings show. Shula's Steak Houses recently pulled its license on the Shula's 347 Grill at the hotel. The hotel was built in 1974 as a Hilton Inn and was expanded in 1980. It has also operated as a Ramada and as the Fort Worth Plaza Hotel.

Sandra Baker,

817-390-7727

Twitter: @SandraBakerFWST

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