La Jolla Developer’s Pink Hotel May Be Turning Into a White Elephant

The grand, unfinished Ramada Hotel with the pastel terra cotta facade sits on a quiet hillside north of California 118 in Simi Valley, Ventura County. The hotel’s foyer will have terra cotta tiles and a grand piano, and the bar and reception desk will be topped in black marble. Some of the 195 rooms will be shaded by 40-foot palm trees and the sweeping view below takes in the city and the distant Simi Hills.

A serene setting? Hardly. “Everyone who ever touched the project will feel the hurt for a long time,” grumbled Tom Keeton, vice president and general manager for Keller Construction of El Monte, the lead contractor still waiting to be paid $1.4 million for work on the hotel.

“I wouldn’t call it a white elephant yet. I think the market will support it. It’s just not supportable by his loan,” said Simi Valley Mayor Greg Stratton.

The “his” Stratton refers to is the developer, La Jolla resident Mir Kazem Kashani, whose hotel project crashed into Chapter 11 bankruptcy protection last January. It listed $19 million in assets, $17.5 million in debts and another $86 million in possible claims depending on the outcome of 20-odd lawsuits that have been filed.

La Jolla Developer Being Sued

County Savings Bank in Santa Barbara, the biggest creditor in the project, has sued Kashani and his limited partnership for, among other things, fraud. The bank contends that Kashani kept changing his plans for the hotel, and that costs climbed out of control. “Kashani’s inability to manage a project of the complexity of the construction project is manifest by the erroneous cost estimates he submitted . . . ,” the bank alleges in Ventura County Superior Court documents.

Kashani says he inherited faulty architectural designs from his former partners and that he had problems with the contractor. County Savings, he added, pushed him to buy out his partners to keep the project alive and, after Kashani complied by putting up more of his holdings as collateral, the bank “pulled the plug.”

Now, Kashani’s $2.3-million investment in the hotel is at risk; three of his properties are tied up in lawsuits and he faces a $1.4-million arbitration award.

“My view is the owner really got himself emotionally involved. He really wanted to make it a good hotel and sometimes design overrules the financial side. He did some wonderful things and got beyond his budget,” Stratton said.

In the middle of it all is David Commons, the court-appointed custodian, who is supervising the final construction on the hotel after a nine-month pause. County Savings, Commons said, has agreed to finance another $5.6 million to complete the project, bringing their investment to more than $20 million, he said.

By the time the hotel is finished in November, it will be more than two years behind schedule and $7 million over the original budget. In the hotel business, costs are broken down by “cost per key,” or how much each room cost to build. Kashani, according to court papers, originally figured the cost would be about $70,000 per key; the final cost will be $100,000 Commons said.

Still unclear is what will happen to the pink hotel. One appraiser said the hotel, once completed, is worth $19.75 million. Commons said it could be sold, refinanced, operated by the bankruptcy court, or the bank could press to foreclose. Even the name of the hotel is up in the air. Commons is thinking of switching to a Radisson franchise to appeal to more upscale lodgers.

Despite the hotel’s jangled finances, Commons insists, “The location is fantastic.” He talks about the growing business market in Simi Valley, the future Reagan presidential library that will be a few miles away. He mentions the hotel’s special meeting rooms, the Oriental rugs, the swimming pool and the 7,500-square-foot “high-energy bar.” That’s hotel lingo for a singles bar.

But the hotel will be the most elaborate in Simi Valley. “I think it’s also slightly premature for Simi Valley,” Commons said. New hotels lose money their first few years because of the big construction costs, and Commons figures the hotel will run a $1-million cash deficit the first year. And this doesn’t address the task of paying off the debt, which Commons describes as “monstrous,” with the interest running more than $2 million a year.

Executives at County Savings Bank declined to comment.

Property Worth $7 Million

Kashani, 62, is an Iranian who moved to the U.S. in 1946 and got into the construction business. Kashani said he’s built five office buildings in California, plus hotels in Europe and the Middle East. Judging by real estate records, he seems to have enjoyed some measure of success. His eight commercial and residential properties in Southern California have an assessed valuation of $7 million. Kashani also owns four cars, according to Department of Motor Vehicle records, including a 1971 Lamborghini.

In May 1985, County Savings Bank agreed to lend $13.6 million to build the hotel. Construction began in July, 1985, and the project was scheduled to be done by June, 1986.

By September 1986, according to court papers, Kashani told the bank he needed another $4 million to finish the job. Somewhere along the line, the bank alleges, Kashani changed his mind and, without telling the bank, decided he wanted to build a fancier Ramada Hotel, instead of a more pedestrian Ramada Inn.

Kashani says his former partners originally planned to build a first-rate hotel and later decided to scale back the operation, but he wanted to follow the original plans.

In any event, County Savings reached a new loan agreement with Kashani. It lent him $1 million so he could buy out his partners--”My biggest mistake,” Kashani said. County Savings also agreed to lend another $4 million to finish the hotel as Kashani put up more of his properties as collateral.

More delays followed. The bank claims Kashani failed to pay the fire insurance on the hotel, and it had to pay that, too. And it claims that Kashani changed the work orders on the project at least 43 times, with another 144 requests pending.

Kashani said Keller Construction didn’t follow the building code, and the Simi Valley inspectors needlessly slowed the inspection process.

By July, 1987, “due to Kashani’s mismanagement . . . the amount of additional funding to complete the project had risen to $6 million,” County Savings claims in court papers.

Hotel Had 82 Bookings

Nonsense, said Kashani, the $4-million loan, plus a few hundred thousand dollars, would finish the job. The hotel already had 82 bookings for the Christmas season, Kashani said, and he “begged” the bank to finish the project. But Imperial Bancorp Mortgage, which had agreed to repay the County Savings loan once the hotel was finished, seemed unlikely to come through.

County Savings then quit financing the deal. Keller Construction stopped working on the hotel, and the lawsuits piled up.

In January, Kashani’s hotel partnership filed Chapter 11 protection at U. S. Bankruptcy Court in San Diego but it didn’t give him much peace. Keller Construction began to press him for the $1.4 million it claimed it was owed.

According to Keller’s court documents, the construction contract Kashani signed contained an agreement that any disputes would be settled by arbitration. Because Kashani didn’t file for personal bankruptcy, Keller brought their case against him to arbitration.

Kashani believed that the contract applied only to the hotel partnership and not him personally. Nevertheless, in April an arbitrator ruled that Kashani owed Keller Construction $1.4 million. Since then Keller has gone to court to try to get the award enforced while Kashani is appealing.

On another legal front, Kashani and County Savings have agreed to a moratorium while Commons gets the hotel finished. But the peace seems shaky. Kashani’s attorney Scott Smylie said of County Savings, “We’re going to dispute what they claim is owed.”

Meanwhile, work continues on the hotel. Last week Cynthia Cheek, a marketing consultant hired to help the hotel get started, stood in the dusty foyer near crates of unpacked glass and said, “This hotel was ahead of the market when it was started. But you know how projects are. With all the problems, by time it opens I don’t think it will be ahead of the market anymore.”