Developer ordered to buy Belvedere Judge tells Hertz to settle Dec. 27

December 20, 1990|By Patrick Gilbert and Kelly Gilbert | Patrick Gilbert and Kelly Gilbert,Evening Sun Staff

A U.S. bankruptcy judge has ordered Florida developer Judah Hertz to buy the Belvedere Hotel under terms of a contract he signed with a court-appointed trustee and the city or face the possibility of paying substantial damages.

Judge James F. Schneider has ordered Hertz to settle the contract of sale by 10 a.m. Dec. 27.

The hearing was held in response to a complaint filed in court by Kenneth F. Davies, the court-appointed trustee for the bankrupt hotel.

Davies' complaint asked Schneider to order Hertz to live up to terms of the purchase agreement and asked Schneider to order an immediate settlement on the hotel.

The complaint also asked the judge to enjoin Hertz or any of his business enterprises from participating in any foreclosure auction of the hotel and to award monetary damages if Hertz does not buy the property.

Schneider denied the injunction request and deferred action on damages until after Dec. 27.

Earlier this month, Davies said Hertz was trying to walk away from the deal. If that is so, the developer would stand to lose the $200,000 deposit he paid Meritor Bank of Philadelphia when he signed the purchase contract. Hertz also would have to pay whatever damages the court might impose on him if the sale does not go through.

Schneider said in denying the injunction motion that he would find it reprehensible for Hertz to renege on the purchase contract, then try to buy the hotel cheaper at auction.

Meritor, which holds the first mortgage on the Belvedere, has scheduled a public auction to sell the property at 1 p.m. Dec. 27.

The hotel was purchased in 1975 by One East Chase Street Associates Limited Partnership, led by Baltimore developer Victor Frenkil. The partnership filed for bankruptcy last year and Hertz stepped forward to buy the hotel for $5.5 million.

Schneider and the city's Board of Estimates approved the sale in October.

Should the sale to Hertz be completed, the city would recoup $1 million owed it by One East Chase and take control of the Belvedere's restaurants and ballrooms, which officials say are worth at least $3.5 million.

The remaining $4.5 million from Hertz would go to Meritor Bank.

Should the foreclosure sale occur and the top bid price fall below the $5.5 million purchase agreement, Davies said, he probably would return to Bankruptcy Court and ask Schneider to order Hertz to pay damages to make up the difference.

Davies' complaint said the Belvedere has lost income from canceled hotel reservations and its food service since Nov. 30, the original closing date for Hertz's purchase.

Davies also said the Belvedere has incurred operational expenses, has lost income from free office space and suites used by Hertz Group personnel, and may lose the difference between the agreed purchase price and the amount a bidder may be willing to spend to acquire the hotel at auction.

If no bid is made at auction, Meritor could opt to buy the building itself or take control of the hotel and try to sell it privately.

"We're very pleased that the court has ordered Hertz to live up to the contract of sale," said John J. Hentschel Jr., chief of the city's real estate division. "We're hopeful he will."

But Davies said he would be surprised if Hertz met the court-ordered deadline.

"After he missed the first settlement, representatives from his group clearly indicated that they now felt there are better development opportunities elsewhere and they were willing to take a financial loss by walking away from the deal," Davies said.

Davies said this was not an indication that the Belvedere is a white elephant, but rather an indication that the Hertz Group did not do its homework before entering into the deal.

After Hertz missed the initial settlement date of Nov. 30., Meritor filed suit in Baltimore Circuit Court for permission to take charge of the hotel until the foreclosure sale. That request was granted.

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