Expert Analysis

Hotel

San Diego, California

Client: Fireman’s Fund Philadelphia, PA
Construction Cost: $13,000,000
Construction Completion Date: 1989

This hotel project involved the bankruptcy of the owner/developer/architect/ contractor. These four entities were combined as one group running the development organization. The hotel is designed to permit private aircraft to fly in and taxi to a tie-down spot adjacent to Montgomery Field, a small airport in San Diego County.

In an ordinary construction completion bankruptcy situation, one entity will file for bankruptcy leaving the other solvent parties to pursue completion of the project. In this situation, all parties defaulted upon bankruptcy of a single entity.

The local bank was pressing for funds; however, some of the officers of the bank were partners in the now bankrupt developer organization. The bank in this instance did not fail because it guaranteed its investment with a surety bond.The bank was mandated to pursue the bad loan that had been made to the developer whose only solvent entity was the bonding company. Surety was called in to complete this project.

Surety had difficulty in defining “complete.” The architect portion of the developer organization prepared insufficient drawings and the contractor arm changed the construction as the hotel was being built. The developer arm was ready to sell the project to either an A-1 hotel chain or to an economy chain, whichever deal materialized first. No deal materialized.

The bank was pressing Surety to complete the hotel to attract an A-1 hotel chain purchase price. Surety called in Digeronimo PC for expert advice.

After a thorough investigation, DiGeronimo PC confirmed there was little documentation for the project. Since all parties were in bankruptcy, they had no motivation to complete documentation. And, since all parties were also one entity, there were few clarification documents to follow up field directions. DiGeronimo PC reconstructed the project referring to various documents filed at regulatory agencies. Surety then completed the construction of the hotel project to the level filed with regulatory agencies.

The goal of this construction completion project was to get the project into a salable mode. The bank would then sell the property to reclaim some of the loan money advanced to the developer organization.