Dec. 21, 2007 - The Lexington Hotel at Orlando CityPlace, downtown Orlando's first condo-hotel conversion project, was sold in bankruptcy court Thursday in a complex, multimillion-dollar deal. But the ultimate owner may still be waiting in the wings.

The first mortgage holder, iStar Financial Inc. of New York, was the nominal winner of the bidding, essentially reclaiming the property for the $25 million owed to it.

Other bidders did not offer more and had various strings, or "contingencies," attached to their bids that made them worth even less.

But a second-mortgage holder could end up being the ultimate owner, in a deal worked out by the major creditors and the debtor, Orlando CityPlace LLC.

U.S. Bankruptcy Judge Karen Jennemann agreed to the complex, two-part sale agreement, which took all day to complete in U.S. Bankruptcy Court in Orlando.

The second lien holder, VAF Sub-CDE III LLC, invested $1 million immediately to earn the right to take another week to raise another $1 million. If it comes up with the second $1 million on or before Dec. 28, it will become the manager of the hotel at that time and the owner as of April 30.

If VAF fails to raise the second $1 million by the deadline, the first $1 million is forfeited to iStar, which then remains the owner. If VAF, part of a tax fund, raises the second $1 million on time, it becomes the owner, and several hundred unsecured creditors will split at least $150,000 of additional settlement money that the fund agreed to pay.

The full amount of the payoff, if any, to unsecured creditors, such as Sysco Foods and Progress Energy, won't be known for some time because other lawsuits to try to recover money will be filed, Orlando bankruptcy lawyer R. Scott Shuker said.

"At least we got it sold. It won't go dark," said Shuker, who represents the debtor, Orlando CityPlace LLC, led by veteran hotel-chain magnate Barry Greer.

One of the principals in VAF -- which is poised to gain control of the hotel, most of the surrounding property and development rights that go with it -- is Bob Stoehr, one of the three original partners in the condo-hotel conversion. He was bought out earlier by Greer and George Kalivretenos, the partners who finally filed for Chapter 11 bankruptcy protection for the project on July 23. Chapter 11 allows a debtor to keep operating while its finances are sorted out and creditors are held at bay.

Kalivretenos, though, is now being sued by Greer and Orlando CityPlace in a dispute over more than $1 million in escrow deposits.

A former title company official testified in court earlier this year that Kalivretenos took control of the money put up by individuals who were buying units in the building. Kalivretenos invoked his Fifth Amendment constitutional right to avoid self-incrimination and declined to testify on the matter. He also voluntarily removed himself from oversight of the hotel and its adjacent bar and restaurant, which have remained in business during the debtor-in-possession bankruptcy case.

Shuker said he had hoped to raise more of the more than $42 million owed in all, but the 2007 slowdown in real estate sales and subsequent seizure of the credit markets made a bigger payoff untenable.

If the VAF deal closes, both the first- and second-mortgage holders agreed to waive the $17 million balance still owed by Orlando CityPlace.

"The market is what it is," Shuker said.

Jerry W. Jackson can be reached at [email protected] or 407-420-5721.

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