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Lender: Owner of ex-Hilton broke rules

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Saturday, Oct. 9, 2010

The primary lender to Pittsburgh's biggest hotel stands ready to operate it as a Hilton again in order to maximize its value under the well-known flag, an executive testified Friday in U.S. Bankruptcy Court.

Eloisa Mascarenas, a vice president with BlackRock Financial Management, said Shubh Hotels Pittsburgh LLC, owner of the former Hilton Hotel, and its associates broke the rules on their $42.9 million mortgage several times over the past year -- including trying to shift the ownership to Dr. Kiran Patel, a Tampa cardiologist who owns other hotels.

BlackRock foreclosed on the loan after Hilton Hotels & Resorts terminated the hotel's franchise agreement after 51 years, on Sept. 2. Shubh then filed for Chapter 11 bankruptcy protection, holding off the foreclosure action, and Patel's representatives are seeking court approval to rebrand the hotel as a Wyndham Grand Pittsburgh. Testimony will resume Tuesday.

Mascarenas said she applied for a franchise from Hilton Hotels in mid-September on behalf of a BlackRock entity and was approved. A hotel management company, possibly Pyramid Group, could run the hotel under a temporary Hilton franchise, she said.

But "Hilton agreed to enter a long-term franchise agreement with BlackRock, in the event that we take title to the property," she said. The deal could be as long as 20 years, although she doesn't know how long BlackRock would continue to own the 712-room property.

Scott Hare, an attorney representing the current owners, questioned Mascarenas about whether BlackRock considered foreclosing in the past. He said BlackRock is a "loan to own" company that has profited before from taking over ownership of properties in default.

The hotel continues to operate without a big-name flag. This keeps it out of the primary marketplace for conferences, said Frank Amedia, the hotel's overseer, after yesterday's hearing. Wyndham helped the hotel install a new computer system for hotel keys and other functions, he said. Hilton's old system was turned off late Thursday.

Mascarenas said a deal for Patel and Jai Lalwani, a consultant involved in hotel operations, to buy the hotel from Shubh late last year never closed because McLean, Va.-based Hilton Hotels rejected it. Shubh CEO Atul Bisaria later tried unsuccessfully to sell to another buyer.

By January, "The borrower was overextended and the property was cash starved," she said, so BlackRock cut the interest rate on the loan to 1.6 percent and delayed a large "balloon" payment on principal to January 2015, with an option to stretch it for two more years.

Revenue at the hotel is just under $2 million so far this year through July, she said, while BlackRock had projected $2.1 million for the period.

There was confusion over expenses, she said. Hotel liquor, sales and amusement taxes were left out of a budget prepared for this year, and Bisaria and Lalwani in June asked for $260,000 to pay sales taxes.

She said Lalwani asked a former management company, Crescent Hotels & Resorts, for two budgets for this year -- one for BlackRock that would include $100,000 a month in management fees for him, and $85,000 for marketing and entertainment fees, and one without.

Lalwani said he had a $1.8 million contract with the hotel, and payments came out of money that Patel loaned.

Mascarenas said when she asked for one budget, "They couldn't furnish me with a budget they could agree on."

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