Westshore Hotel foreclosure caused by high debt, mismanagement

Plans to replace the Westshore Hotel in Tampa with luxury rooms went awry amid high debt and mismanagement, experts say.

CHRIS ZUPPA | Times

Plans to replace the Westshore Hotel in Tampa with luxury rooms went awry amid high debt and mismanagement, experts say.

TAMPA — Like a growing number of U.S. hotels squeezed by high debt and plummeting revenue, the Westshore Hotel succumbed to an auction sale at the county courthouse. But wider problems helped push the aging Westshore into foreclosure two months ago. Most were tied to decisions by local owners with no experience in the hotel business.

They overpaid for a threadbare, unbranded property, say hotel experts. Owners ran off professional management, let dozens of rooms become infested with mold and failed to pay nearly $68,000 in state sales taxes.

The lead partner, Fuel Group of Tampa, had big plans. Tapping free-flowing loans, the group bought property to build three luxury hotels: in St. Petersburg's Old Northeast, across from the downtown Tampa Convention Center and on the site of the Westshore Hotel.

Fuel was owned by Jiwat Lalwani, a former oil and power plant executive in Nigeria, and his wife, Indira, who live in the upscale Cheval community north of Tampa. Their son, Jai, owner of two Tampa nightclubs, was chief executive, frontman and chief salesman.

All three projects fell apart before the first shovel of dirt was turned. Now, the family and prominent Tampa Bay business leaders, including GeoPharma chairman Jugal Taneja, are entangled in lawsuits over the deals.

Also burned was Tampa strip-club king Joe Redner. He bought out a partner in the project and lost about $3.6 million before lender UBS took over the hotel.

"The idea was to keep it running a little while, then we'd get financing to build (a new hotel) there," Redner said. "I tried to see if it could be operated and make money. It never did."

The other principals aren't talking. Attorneys for the Lalwanis, Taneja and UBS didn't return telephone calls or e-mails for comment.

An e-mail in March signed "Fuel Management" insisted the hotel was doing fine until the latter part of 2008. Fuel expected to move ahead with the projects, said the e-mail to the St. Petersburg Times, and lawsuits were part of business.

"We would like to point out that litigation, foreclosure, bankruptcy are all modern tools of negotiation," it read. "One should not be scared to face these problems head on."

• • •

The project had momentum in the summer of 2007.

In June, a partnership that included the Lalwanis and Taneja paid $17.4 million for the West­shore, a nondescript two-star property that had lost its Best Western affiliation. The sellers loaned the partnership $2 million to supplement a $15.4 million mortgage from UBS.

A month later, the partners nailed down another critical piece of the project: a license from Westin Hotels to put the luxury brand on the high-rise they planned to build there.

But soon some partners wanted out. Jai Lalwani was looking for investors and approached Redner. He knew Lalwani as owner of an Ybor City hip-hop club called Club Fuel, a frequent target of Tampa police for violating the city's noise ordinance.

They flew to New York with consultants to meet Westin executives. Redner was smitten by the project. In October 2007, he paid $2.6 million for a stake, he said, without doing anything close to due diligence.

The Westshore's general manager had experience running hotels owned by a partner from Boca Raton. But he left after run-ins with Lalwani, said Toni Derby, who operates Redner businesses that include the Mons Venus strip club, a fitness center, a film production company and office property.

Derby took over in January 2008 and quickly learned the place was a mess: rooms with busted furniture, broken air conditioners and moldy, stained carpets. At one point, half of the 235 rooms were closed because they were unfit for guests, Derby said.

There was no engineer to fix anything mechanical until she found one. She hired a contractor to take calls when the only reservations agent was off from 4 p.m. to 8 p.m. and on weekends.

• • •

The souring economy began punishing hotel properties across the United States last year. As businesses cut back on travel and vacationers stayed close to home, hotel revenue plummeted.

Like homeowners who borrowed heavily, overextended hotel owners couldn't make mortgage payments. Last month, 72 U.S. hotels had been taken over by lenders, according to Real Capital Analytics, a New York firm that tracks lodging industry finances. More than 1,000 are in the process of foreclosure or in danger of going that way.

The Westshore wasn't bleeding cash just because of the economic downturn. The old Best Western brand filled lots of rooms through a nationwide reservations system. Without that, bookings the new owners inherited eventually ran out, Derby said.

Through 2008, Redner dumped about $1 million into repairs and expenses, she said. But the partnership didn't keep up with the bills.

Hopes for the new Westin evaporated. By fall, financing for commercial construction — particularly hotel projects — disappeared as credit markets seized up. But the partners had a more pressing concern: a $15.4 million mortgage that was due Dec. 9.

• • •

The loan went into default when the partners couldn't pay. Two days later, UBS sent a team to the hotel. It was told the partners couldn't afford to keep the doors open past Dec. 19.

That would mean losing tourist business for the holidays, the New Year's Day Outback Bowl and the biggest payday of all, the Feb. 1 Super Bowl XLIII. Not to mention damage to the hotel's reputation by leaving customers with reservations out in the cold.

An engineer on the UBS team talked to Derby and inspected rooms. He estimated 41 rooms were infested with mold in the carpets and walls. Others got treatment that was "inadequate by current industry standards," said Russell Gordon of EBI Consulting in a statement filed in the UBS foreclosure suit.

Water leaking from faulty air conditioners was to blame, he said. Hotel operators didn't maintain the units or run them regularly to dry out the rooms.

The UBS team made another discovery: The Florida Department of Revenue had placed a freeze on a bank account the partnership controlled. The action prevents the balance from dropping below $67,762, the amount of sales taxes from the Westshore still owed to the state.

On Jan. 13, a Hillsborough County circuit judge granted an emergency motion by UBS to appoint Janus Hotels and Resorts, a lodging operator, to take over management.

UBS bought the Westshore for just over $1.6 million at auction Sept. 4.

On Oct. 30, Taneja filed suit against Walter Hamer, the president of Pegasus Hotel Associates, which had sold the Westshore to the partnership. He says Hamer misrepresented that the rooms were mold-free and that revenue from the hotel would cover interest payments on the property.

They might not be as contentious, but more hotel foreclosures are brewing in Tampa Bay. "This is the first one to fall by the wayside," said Dennis Reed of the Plasencia Group, a Tampa hotel broker and consulting firm. "But it probably won't be the last one."

Steve Huettel can be reached at huettel@sptimes.com or (813) 226-3384.

Westshore Hotel foreclosure caused by high debt, mismanagement 11/06/09 [Last modified: Friday, November 6, 2009 9:27pm]

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