|By David Siders, The Record, Stockton,
Calif.McClatchy-Tribune Regional News
August 1, 2009 - STOCKTON -- The Lexington Plaza Waterfront Hotel, a central part of Stockton's campaign to rebuild its waterfront and, when it opened in 2007, the most expensive private investment downtown in almost 20 years, is to close next week, the hotel said Friday, millions of dollars in debt and unable to withstand the real estate market's fall.
First Bank of Missouri, the bank foreclosing on the hotel, is likely to take possession of the hotel at a public auction Thursday.
The announcement deflated City Hall.
"I think everyone is in shock that this would happen at this juncture," Mayor Ann Johnston said. "It's just so frustrating. I'm just so frustrated that this kind of thing happens."
The hotel had been in receivership since summer 2008, and hotel and city officials had expected it to stay open despite foreclosure and an October petition for bankruptcy protection by the hotel's owner, Regent Hotel LLC.
Johnston said hotel Vice President Jeroen Gerrese told her a court-appointed receiver had ordered the hotel to close after the weekend. Gerrese did not return telephone calls for comment. A hotel official referred calls to the receiver, Steven Speier.
Speier said the hotel will remain open until Thursday's auction and that his involvement with the hotel will end then. A decision to close the hotel or not will be the buyer's, he said.
Johnston said Gerrese told her there are "a number of parties who are interested" in the hotel, though she said he did not name them. The hotel is in substantial debt. A legal announcement of the sale put that debt at $39.6 million. In a bankruptcy filing, Regent in May referred to an appraisal of the hotel at $22.3 million.
Regent said when it opened the hotel in December 2007, then a Sheraton Hotel, that it paid $62 million to build it. Its financing relied on the sale of condominiums at the hotel, the market for which evaporated during the foreclosure crisis. Contractors were left unpaid, First Bank foreclosed on Regent and a receiver was appointed.
Regent, a subsidiary of the company that built Stockton Arena and Stockton Ballpark, has claimed the bank unfairly withheld part of its $40 million construction loan. That litigation remains in court.
In its petition for Chapter 11 bankruptcy protection, Regent listed as assets the $22.3 million hotel and $368,113 in cash. It listed $49.3 million in claims against it.
Regent representatives did not return telephone calls for comment. Nor did First Bank.
Regent has maintained during its bankruptcy and foreclosure proceedings that the hotel is an operational success.
In May, the last month for which a record was available, occupancy at the Lexington was just less than 25 percent and the average room rate $97, according to a report by Speier in Regent's bankruptcy case. The hotel that month posted a $19,896 operating deficit, the report said. The previous month, however, the hotel had a surplus of $20,104, and from July 2008 through May hotel revenue was $4.9 million, better than expenses by $75,807, according to the report.
The hotel was built on waterfront property the city sold Regent for $1. Its construction also benefitted from a $500,000 city subsidy.
Johnston and City Manager Gordon Palmer said they expect it will remain a hotel.
"I expect that we'll have a new operator there," Palmer said. "I don't know when."
Johnston said it "makes no sense at all" to close the hotel before another operator can be found. She said Gerrese told her the hotel was canceling events worth hundreds of thousands of dollars.
"I just think it's so irresponsible of the receiver to close it," she said.
The hotel became part of Vantage Hospitality Group's Lexington Collection in November, months after Sheraton demanded it stop using its name. A Lexington spokeswoman, Melissa Scott, said Friday she did not know if the hotel was closing.
Palmer said the hotel's closure "shows what happens when the economy falls apart." He said, "I'm disappointed."
The announcement startled hotel employees. One of them, Anthony Henry, said there is a mandatory staff meeting Sunday to discuss the closure.
John Beckman of the Building Industry Association of the Delta said the hotel informed him it will not be open for events the BIA had planned to host there in September and November.
In an e-mail, the hotel's Amber Wright said, "I regret to inform you that I was advised Thursday evening the hotel will cease operation next week, thus making all contracts null and void."
Beckman said he was told the BIA will have its deposit refunded.
The hotel is the largest private investment in downtown since American Savings Bank built its $40 million headquarters in 1989. The bank building, purchased by the city in 2007 to eventually turn into a new City Hall, is now Chase Bank Plaza.
Contact reporter David Siders at (209) 943-8580 or email@example.com. Visit his blog at recordnet.com/blogs.
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Copyright (c) 2009, The Record, Stockton, Calif.
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