Hotel Garage’s Losses Key to Anaheim Suit

It looks like a gray, concrete, four-story parking garage.

But by all accounts, the structure between Southern California’s largest hotel, the Anaheim Hilton and Towers, and the city’s convention center is a financial white elephant of monstrous proportions.

It was built as a concession to the city to replace city-owned parking spaces on the site of the Hilton and was expected to be a money-loser from the beginning. The question of who must bear that loss is at the center of a dispute that has prompted the city to begin eviction proceedings against the hotel.

The 3,200-space garage brings in about $250,000 a year, but the debt service under the financing arrangement that provided the money for its construction amounts to about $6 million a year.

“The hotel is trying to get out of an obligation to pay $6 million a year for the next 27 years,” Anaheim City Atty. Jack L. White said. “That’s the bottom line.”

Stanley R. Castleton, president of May Cal Properties Inc., disagreed. He is the managing partner of the firm that in 1984 bought and completed the building that houses the Hilton.

“We did not assume financial responsibility for it,” Castleton said.

He said he has “no idea” how Anaheim can claim otherwise.

“This whole thing is crazy,” Castleton said.

The owners of the building sent a telegram Wednesday beginning “Dear Ben” to Anaheim Mayor Ben Bay with an “urgent appeal” for discussions. But they also issued a press release Wednesday saying a “multimillion-dollar lawsuit is imminent.”

The dispute dates back to Anaheim’s original 1982 plans to put a huge hotel on part of the convention center parking lot.

The deal with the developer, CD-III, included a promise to replace the parking area lost to the center with two parking garages, one to be run by the city and the other by the hotel. The city arranged for $54 million in financing, and the developer agreed to build the garages and pay the $6-million annual debt service.

Severe Overruns

But severe cost overruns threatened the May, 1984, opening of the hotel. The Anaheim Hotel Partnership stepped in, pumped in $30 million to complete the project and took over the development deal from CD-III.

Castleton said the city agreed then to renegotiate the parking garage arrangements as part of the bait to get the hotel back on track. And he said it was agreed that the partnership would have to pay no more than $9 million toward the total garage debt.

The partnership has already paid its $9 million and is obligated to pay no more, Castleton said.

That leaves city taxpayers to make up the $5.6 million in debt-service payments already missed since last summer, according to White, and to continue making future payments.

“The deal was that CD-III would be allowed to build a hotel on land owned by the city,” White said. “The lease was for 50 years, with options, beginning when the hotel opened.

“Part of the agreement was that they (CD-111) would also construct and pay for the parking structure for the hotel--and for the city--that would replace spaces taken up by the hotel and its parking lot. “

The problem, all parties agree, is not the financial viability of the hotel itself.

“The real problem is that the parking structure, for the hotel, has not been economical to operate,” White said.

“The money generated from its operation has not come close to paying the debt, according to the partnership. They are trying to separate the hotel revenue from the parking structure revenue, but it’s our belief that they can’t do that--it’s all one deal.

“It’s really not our problem. If they’re not going to make the parking payments, they’re in default under the hotel agreement. Therefore we have the right to require them to vacate the property, just like you would for somebody who doesn’t pay their rent on an apartment. If they don’t pay, you toss them out.”

Though White said the city doesn’t want to get into the hotel business, he acknowledged that if push came to shove the city might make some arrangements with Hilton Hotels Corp., which manages the structure under contract with Castleton’s group.

“If we’re forced into it, I cannot think of anybody better to manage it than Hilton,” he said. “They’re a great hotel chain.”

Willing to Talk

Although both sides said they were willing to talk, both also said they are willing to let the dispute play itself out in the courts. No discussions were scheduled as of Wednesday.

Hilton Hotels Corp. sees no merit in the city’s position, according to Jill Shannon of Kerr & Associates Inc., a Huntington Beach public relations firm that said it represents both the Hilton chain and May Cal Properties.

“The Hilton does not agree with or support the City of Anaheim’s legal position in this matter whatsoever but trusts that both the city and the hotel owners will eventually arrive at a viable solution,” Shannon said. “Meanwhile, the hotel will continue to operate business as usual.”

All Anaheim wants is its money, White said: “Our only interest at the moment is to recoup the $5.6 million and protect the taxpayers’ interest.”

“A couple of years ago, they (the city) were very glad to have us,” Castleton said. “Now, they’re trying to throw us out.