|By Sandra Baker, Fort Worth
Star-TelegramMcClatchy-Tribune Regional News
Aug. 25, 2012--FORT WORTH -- The Las Vegas owner of the Sheraton Hotel and Spa in downtown Fort Worth deposited $1 million in a Bankruptcy Court account Friday and now has until Nov. 24 to win approval from creditors and the court for its reorganization plan or face foreclosure by the property's senior lender, Dougherty Funding.
U.S. Bankruptcy Judge D. Michael Lynn in Fort Worth said he wanted the deposit because he was reluctant to allow Vestin Originations to restructure without giving Dougherty, based in Minneapolis, some protection.
If Vestin didn't deposit the money, Dougherty would have been allowed to move forward with foreclosure.
Vestin will also be required to continue making monthly $241,000 interest payments to Dougherty through November, the court said.
In a ruling issued Thursday, the court denied Dougherty's request to dismiss the bankruptcy case.
For months, Dougherty and Vestin have been embroiled in a dispute over who should own the hotel after the original borrower, Presidio Hotel Group in California, defaulted on loans with each lender late last year. Presidio, which redeveloped the hotel, deeded the property to Vestin to avoid a foreclosure. That set off a series of lawsuits in state court and the bankruptcy filing March 26.
In the ruling, Lynn agreed with Dougherty that the bankruptcy was filed in bad faith but said the case boils down to a "one-on-one dispute" between Dougherty and Vestin.
Terminating the bankruptcy case, the judge wrote, would only send the two sides back to state court in "an ongoing series of litigations" that could harm the quality of the hotel and possibly cost employees their jobs. Lynn said the case is better off in his court, where he can keep an eye on the property and insulate the hotel "from the harm it could suffer as the focus of lawsuits in other forums."
Vestin is operating the hotel, recently buying new televisions for the guest rooms and filing monthly financial statements with the court.
"The possibility that the property will deteriorate in value is very real," Lynn wrote. "The court takes judicial notice of the uncertainties plaguing the national economy, and, of necessity, that of Texas, such as slow growth or even economic meltdown in Europe. The result for the property ... will be for it to serve as a fraying rope in a continuing tug of war between Dougherty and Vestin."
The court account also holds a $495,028 tax rebate from the city.
The payment was made in June for an incentive earned in 2011 by Presidio.
Dougherty, Vestin and Presidio all say they are entitled to the money. Lynn has delayed a ruling on the matter. The City Council will also need to vote on whether to continue the tax incentive with a new owner.
Presidio bought the hotel in 2006, borrowing $45 million from Dougherty to pay for the property and renovations.
Presidio later borrowed about $11.8 million from Vestin to finish the project.
Dougherty and Vestin entered into an intercreditor agreement that made Dougherty senior lender and Vestin junior lender. When Presidio defaulted on the loans last year, both lenders pursued foreclosure, but Presidio said it deeded the property to Vestin because it posted the property first.
Dougherty has argued that Vestin violated the intercreditor agreement by setting up an entity to transfer loan documents and accept title to the property.
Sandra Baker, 817-390-7727
(c)2012 the Fort Worth Star-Telegram
Visit the Fort Worth Star-Telegram at www.star-telegram.com
Distributed by MCT Information Services