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Published Jun. 29, 2010

Dale and Mary Grayl are not done fighting.

In 1994 they invested all of their savings into the Lantern Lane Hotel, a historic Beach Drive building that was one of the city's first hotels and, before that, the onetime residence of former Mayor Al Lang. They renamed it Grayl's Hotel. They borrowed money to add a restaurant and bar and restore turn-of-the-century charm to 340 Beach Drive NE.

Sixteen years later, the building, at least visually, is a jewel on what has become the city's prime commercial and tourist corridor. But it is also in deep water.

In April, Dale and Mary Grayl filed for Chapter 11 bankruptcy reorganization, which allows them to hold off creditors while arranging to pay them. Court filings show $2.5 million in assets, $2.3 million in liabilities and about 25 creditors.

"We're trying to make it here. It's tough," said Dale Grayl, 60, who said the business was his retirement plan. "We've got to keep on. What are we going to do?"

The Grayls, who moved to St. Petersburg from Wisconsin 35 years ago, bought the three-story building for $725,000 in 1994.

Back then, the former Lantern Lane Hotel was an eyesore, said Mary Grayl, 64, who manages a pool company the couple also owns. They renovated the Mission-style structure with a Roaring '20s theme, capitalizing on the building's existing features like claw-foot bathtubs, tile and wood flooring, and wall cupboards for storing ice blocks. For several years it was a profitable boutique hotel with a dozen rooms and 16 apartments.

But downtown was changing. Condo towers and other hotels were going up around them. The Grayls figured that for their investment to pay off, they had to do more than just be a hotel.

They devised an expansion plan. A framed color rendering that shows the height of their dreams hangs in the lobby. The eight-story building has a fourth-floor terrace and a narrower tower on the rear that rises up to a penthouse. After the developer asked for $10 million up front, that plan was nixed.

"We would have paid the first mortgage and that would have been it," said Dale Grayl.

They also scratched the Prohibition Club, which would have charged $3,000 memberships. But some aspects of the plan survived, like Gatsby's Restaurant and Packard's Bar on the ground floor, and an outdoor courtyard for receptions and parties. To finance them, the Grayls took out various loans against their mortgage.

They had reason to be optimistic, said Timothy Papp, the Grayls' attorney in the bankruptcy. Several years ago, a private appraiser said the building itself was worth about $4 million. Then the economy sank. Court filings show revenue from the hotel plummeted from $455,000 in 2007 to $239,000 in 2009. The restaurant and bar, which have since increased revenue, didn't open until last year.

But by then the unpaid bills were stacking up. Last year, the Grayls settled two court cases tied to unpaid $110,000 and $55,000 loans related to the expansion, court records show.

About 25 creditors have made claims against the business. The largest is Abbey Construction of Palm Harbor, which says it is owed $175,560.

In August, the Grayls plan to submit a financial plan to repay their debts, which include unpaid 2008 and 2009 property tax bills of about $40,000 each.

Rick Dunn, the city's building official, said the city did all it could to help the business by expediting work permits and helping it add sidewalk seating for the restaurant.

Amid all the red ink, the Grayls are hopeful.

In the past eight months, revenues have grown.

In March, occupancy in the hotel was at a comfortable 75 percent. Last week, they were able to resume mortgage payments, and the restaurant added Angus beef steaks to its menu.

Outside, there are mounds of rubble where workers are building a new courtyard, which is to open by fall. About 150 receptions and parties are booked. And the hotel website blares: "Chihuly Collection arrives 150 feet from the Grayl's Hotel!"

Mary Grayl became teary-eyed giving a tour of the wood-paneled restaurant recently.

"It does make you stronger," she said, "when you go through tough times like this."

Researcher Shirl Kennedy contributed to this report. Luis Perez can be reached at (727) 892-2271 or