August 31, 2010 --The troubled Hilton Pittsburgh has dumped its latest manager after a court battle that pitted the Downtown hotel's owner against its lender.

Prism Hotels and Resorts of Dallas took over management of the Hilton last week, more than a month after Shubh Hotels Pittsburgh LLC, the hotel owner, sued to oust Virginia-based Crescent Hotels & Resorts, which had been hired in February.

Frank Amedia, owner's representative for Shubh, said in a phone interview that Crescent was dismissed after customer satisfaction scores for the Hilton were "going south instead of north" under the firm's management.

"That's just totally unacceptable," he said.

However, the lawsuit -- filed by Shubh after its lender, BlackRock Inc., balked at the firing -- paints a deeper picture of problems among Shubh, Crescent and BlackRock, as the hotel continues to struggle to right itself.

The complaint, filed July 21, also offered a rare glimpse into the extent of the hotel's financial woes.

It said that Shubh sought outside offers to purchase the Hilton last fall. According to the lawsuit, Shubh has a $49.5 million debt on a property it said was "realistically worth" $30 million. Furthermore, Shubh had accumulated about $8.2 million in liens and judgments for unpaid bills and other debts by last autumn.

The lawsuit also reported that the Hilton lost more than $1 million over the winter, stating that was "typical" for that season.

Rather than sell, Shubh decided to restructure its loan with BlackRock, reducing the interest while keeping the principal balance at $49.5 million. As part of the agreement, Shubh also deposited nearly $2.1 million in an escrow account to pay liens, judgments and other bills, the lawsuit stated.

In the complaint, Shubh accused Crescent of going behind its back to communicate with BlackRock and of making a "series of misleading claims" to the lender about the hotel owner.

The lawsuit also charged that Crescent had talked to Hilton Worldwide about "de-flagging," or taking its name off the hotel, and had held a series of discussions about the "appointment of a receiver" for the property, whose unpaid bills prompted work to stop on an exterior addition for more than a year, leaving an eyesore.

In addition, the lawsuit maintained that the hotel's quality assurance scores had "dropped precipitously" under Crescent, with room cleanliness falling from 100 percent to 13 percent.

The complaint also detailed a souring relationship between the Hilton owner and BlackRock.

Shubh accused the lender of withholding money to pay delinquent county hotel and drink taxes and refusing to release funds for construction and operations.

The dispute triggered dueling default notices, with Shubh and BlackRock accusing each other of being in default of the loan agreement.

When Shubh tried to fire Crescent last month and appoint another firm, Windsor Capital Group, as the hotel manager, BlackRock refused to approve the hiring, ordered Crescent to continue managing the property and demanded immediate repayment of the $49.5 million outstanding loan, according to the lawsuit.

That prompted Shubh to go to court for the right to change managers and to force BlackRock to release the money to pay taxes that Shubh claimed was being withheld.

Many of the issues ended up being resolved in a July 23 court order issued by Allegheny County Common Pleas Judge Michael A. Della Vecchia.

In it, Judge Della Vecchia allowed Crescent to continue as manager for up to 30 days during an audit of the Hilton's books. However, he also gave Shubh the right to search for a replacement, with terms acceptable to BlackRock.

The judge also ordered the release of more than $500,000 to pay state sales taxes and county hotel and drink taxes owed by the Hilton and required Shubh to take care of millions of dollars in liens owed to contractors, vendors and others. BlackRock agreed to rescind its decision to demand immediate payment of the $49.5 million loan.

Mr. Amedia said Crescent was dismissed when the audit was completed. He said the hiring of Prism, which manages more than 9,000 rooms in 22 states, including Hilton brands, was agreed to by Shubh, BlackRock and Hilton Worldwide.

Jim Haughney, Crescent's vice president of operations, declined to comment on the lawsuit's allegations. Lauren Trengrove, a BlackRock spokeswoman, also declined comment.

In response to its financial woes, Shubh restructured its ownership early this year, bringing in Dr. Kiran C. Patel, a Tampa, Fla., cardiologist and philanthropist. The Related Group, a Miami-based real estate developer and builder, also had a role.

The restructuring was to come with an infusion of about $6 million in cash to help to pay off liens and other debts.

In a news release Monday, the Hilton stated that work on the exterior renovation, suspended in May 2009 because of unpaid bills, had resumed. The Hilton also has replaced exterior windows, is refurbishing the marble floor in the main lobby, and is ripping up carpet at the main entrance and substituting stonework.

Mr. Amedia said Shubh had invested an estimated $1 million in work at the hotel over the past 30 days, separate from the exterior construction.

Mark Belko: [email protected] or 412-263-1262.

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