March 30, 2013--The developer who got a $20 million loan from Riverside to build the downtown Hyatt Place hotel has sued the city, alleging it breached their agreement and ruined his expectations of profit by closing the nearby convention center two months after the hotel opened last year.

The suit, filed March 19 in Riverside County Superior Court, came as little surprise. In September, developer MetroRiverside LLC filed claims for damages with the city, which rejected them.

An attorney for MetroRiverside, which is headed by Siavash Barmand, declined to comment this week on the suit, as did Riverside officials.

The two sides may not be talking now, but a few years ago they were a lot friendlier.

Barmand first signed an agreement with the city in 2006 to develop the Fox Plaza project, which was to include almost 60,000 square feet of commercial space, hundreds of condominiums and lofts, parking and a hotel, all a stone's throw from the city-owned Fox theater, which was renovated and reopened in 2010.

Also in 2010, the council voted to sell $20.6 million in tax-exempt federal bonds to finance the hotel. Meanwhile, officials scaled back the Fox Plaza plans by more than half, cutting the square footage and number of residential units significantly. At the time, Barmand blamed the project's shrinkage on the economic climate.

The hotel opened in April 2012, and in June, the city closed the convention center for a major renovation and expansion project. Some events have instead been held at the Riverside Municipal Auditorium.

MetroRiverside's suit alleges the city initially said it would do the convention center work in phases and keep it open, and officials never communicated the change in plans. Closing the convention center, which is about a half-block from the hotel, hurt its profits significantly, the suit argues.

The developer also says the city required extra road improvements beyond what hotel traffic would necessitate.

The suit asks for at least $4 million in damages and a court judgment that the city's actions either release the developer from the agreement to build Fox Plaza or at least suspend any obligations until the convention center reopens in 2014.

Regardless of how many guests the hotel may have had, so far the debt service on the city loan has been paid, city officials said. Councilman Mike Gardner said Friday, March 29, that the latest payment of $540,000 was due this month and was made on time.

However, he said, 25 percent of the payment came from the hotel's operating revenue, and the remaining 75 percent was drawn from a reserve account the city required as security for the loan.

Gardner said he hasn't heard from the other downtown hotel, the Marriott, about how business has been since the convention center closed, but other nearby shops and restaurants have seen some customers during construction.

"Even though the events are happening up at the Municipal Auditorium, they're still getting some business out of it," he said.

Follow Alicia Robinson on Twitter: @arobinson_pe or online at http://blog.pe.com/riverside/

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