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City of Hartsville, South Carolina Files Suit Against Hotel Developer,
Balaji II LLC, Alleging Officials were Misled About Ability to
Self-Finance a Planned Hampton Inn & Suites

By Jim Faile, The Messenger, Hartsville, S.C.McClatchy-Tribune Regional News

Jan. 28. 2011--HARTSVILLE -- The developer who planned to build a Hampton Inn & Suites in downtown Hartsville misled Hartsville city officials about his and his company's ability to self-finance and build the project, a lawsuit filed by the City of Hartsville in state court alleges.

From 2008 until mid 2009, D.J. Desai and his company, Balaji II LLC, repeatedly represented to city officials that Desai and his family were "experienced, competent hotel and commercial property developers who could develop and construct a Hampton Inn & Suites" in the Vista area of downtown Hartsville similar in quality to a Hampton Inn & Suites the company built in Newberry and that the project would pose no problem because the developers could "finance it by themselves without relying on a bank," the complaint filed in Darlington County Common Pleas Court alleges.

The city is suing Desai and Balaji for breach of contract and misrepresentation and is asking the court to return immediately to the city ownership of the nearly 3 acres of property in the Vista where the hotel and a restaurant were to have been built. The developers acquired the property from the city in 2009.

The suit also seeks monetary damages from the defendant in an amount deemed appropriate by the court. The city alleges the defendants allowed the property to deteriorate and that as a result the city lost value on its investment in remediating the former railroad yard to make it suitable as a site for commercial development.

"Defendant developers have allowed 'changes, alterations, waste or destruction' to occur on PARCEL ONE which caused significant damage, to the extent that DHEC (S.C. Department of Health and Environmental Control) required the said defendants in early 2010 to make immediate corrections. Since then, PARCEL ONE has sustained additional deterioration due to said defendants' failure to proceed with the development and construction of the said Hampton Inn & Suites on (parcel one and failure to otherwise maintain the integrity of PARCEL ONE," the complaint states.

"The city is informed and believes that unless this Court grants it immediate relief by way of transfer of title and possession of PARCEL ONE to the city, this historic and important commercial site will most likely deteriorate so much that all the remediation work done by the city from 2003 through mid 2009 will most likely be negated and result in a significant public health hazard, will necessitate most like result in additional remediation efforts and costs, and will most likely diminish development and commercial value and use that PARCEL ONE when it was conveyed to Defendant Balaji in July of 2009," it states.

The city is also asking the court to block the developers selling, mortgaging or "conveying, encumbering or otherwise alienating title" to the property pending the outcome of the suit.

Desai said last week that he cannot comment about the case because it is in litigation. City officials have also declined to comment for the same reason.

The defendants have 30 days from the date of service to file an answer to the complaint.

Desai and Balaji acquired the Vista property in 2009 in a land swap with the city. The company had purchased a site on South Fourth Street near the Retail Row shopping center and the Wal-Mart Supercenter as a site for a hotel. Following extensive discussions between the developers and the city through much of 2008 and 2009, the swap occurred and the developers entered into a contract with the city to build a hotel in the Vista, according to the complaint.

The contract called for the defendants to do several things before closing on the contract, including warrant that all necessary financing for the project was available to them; that they would have a franchise agreement with Hampton Inn & Suites; that they would secure written approval for development of the site by DHEC; that they would provide acceptable building development plans that met all necessary requirements; and obtain a compliance agreement from DHEC regarding any liability on account of any existing contamination.

The company agreed to close on the contract on June 25, 2009 and closed on the acquisition of the Vista property on July 9, 2009.

The property on Railroad Avenue was the location of a rail yard for nearly 100 years up until 2003. Over the years, the property became contaminated and from 2003 to 2009, the city undertook extensive cleanup efforts to make the property suitable for commercial development, including encapsulating underground chemicals on the site, according to the complaint.

In early 2009, DHEC declared the Vista property was fit for commercial development and use, the complaint states.

After closing on the contract, the defendants had the old S.C. Central Railroad office building on the site at the corner of South Fourth Street and East Carolina Avenue demolished so the hotel project could begin.

But soon thereafter, problems began to arise, according to the complaint. "After difficulties arose between the Defendant Developers and a site work Contractor, the Contractor was discharged. Other subcontractors were not paid by the Defendant Developers and checks issued by the Defendant Developers to the City for fees were dishonored and returned," the complaint states. "In spite of these and other events, the Defendant Desai persistently assured the City that hotel construction would begin in earnest and be completed in a timely manner."

But after the demolition of the railroad office building, little activity followed on the site. That allowed the site to deteriorate to a point that it "has and continues to threaten the integrity of the entire site," the complaint states.

In addition, the degraded condition and appearance of the site has created a public nuisance, the complaint says.

The complaint alleges that throughout the first half of 2010, the defendants continued to tell city officials that they were determined to fully comply with the terms of the contract and would soon begin construction of the hotel and a "complimentary commercial project" following a closing with a bank for financing and that the defendants told the city that a closing with the bank was "imminent."

But in the spring of 2010, Desai informed the city that the bank had become hesitant about financing the project, the complaint alleges. To assist the developers' efforts to get the financing, the city went so far as to collect letters of support from local businesses attesting to the need for a hotel in the downtown area, according to the complaint.

Next, the developers began telling city officials that a closing on the financing could not occur unless the portion of the property designated for a restaurant was separated from the hotel site. The city agreed and subdivided the property, but still no financing came through, according to the complaint.

On Nov. 18, 2010, Desai notified the city that his "latest lender" had "pulled out" because it "couldn't get comfortable with environmental reports and contamination," according to the complaint.

"Defendant Desai further stated that 'I have been instructed by our board not to allocate any further funds to this project as we have significant cash outlays and no real hope that the project will come to fruition,' and there was 'no need to avoid the inevitable at this point,'" the complaint states.

The complaint alleges that although Desai agreed to meet with city officials to discuss returning the property to the city, he failed to do so.

The complaint says that returning title of the property to the city is the only relief remedy available to the city. The complaint asks for an emergency injunction ordering the defendants to return ownership of the property to the city immediately to prevent any further deterioration of the property.

The complaint also asks for any other damages the court deems fair, just, equitable and appropriate.


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Copyright (c) 2011, The Messenger, Hartsville, S.C.

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