U.S. Bankruptcy Judge James Schneider said he is not disposed to halt the sales of condominiums and office space at the 87-year-old Belvedere Hotel.
Schneider told the trustee, attorney Kenneth F. Davies, that the matter appears to be out of his hands because the hotel has been sold.
However, the judge said yesterday he would give Davies until Monday to present final arguments.
In a motion filed in bankruptcy court this month, Davies asked the court to prevent any more settlements at the hotel until he completed an investigation of the Belvedere Realty Corp., the new hotel owner, and the Hertz Group Inc. Last year, the Hertz Group backed out of a $5.5 million agreement to purchase the Belvedere.
Davies told the judge he believes Belvedere Realty and its owner, developer Elliott Sharaby, may be affiliated with developer Judah Hertz of the Hertz Group. In December, Schneider ordered the Hertz Group to proceed with the purchase of the Belvedere, but it did not. The Hertz Group says it couldn't get financing for the deal.
At the time Schneider said it would be "reprehensible" for Hertz or any of his associates to try to buy the hotel at a lower price after backing out of the deal.
Davies said he believed that is exactly what happened and asked Schneider to halt settlements at the hotel to preserve assets for distribution to creditors.
As trustee Davies represented the interest of the Belvedere's unsecured creditors, who had claims of $15.3 million. The hotel's former owner, One East Chase Street Associates Limited Partnership, led by Baltimore businessman Victor Frenkil, filed for bankruptcy in May 1989.
Frenkil's group acquired the building for $650,000 in 1975, and spent close to $12 million to upgrade it.
When the deal with the Hertz Group fell through last fall, the bank holding a first mortgage on the hotel foreclosed on the Frenkil partnership and put the hotel on the auction block. A group headed by the bank, Meritor Savings Bank of Philadelphia, ended up buying the 13-story hotel.
Since the sale of the hotel didn't even bring enough to pay off the bank's debt of more than $5.3 million, the unsecured creditors went unpaid.
Sharaby, 30, purchased the Belvedere from the bank in the spring for $3.8 million. Appraisers had set the hotel's value at $6.7 million.
Sharaby said he is a friend of Hertz and that it was Hertz that told him about the hotel.
"But there weren't any fraudulent activities," Sharaby said yesterday.
Sharaby said he used the same professionals that Hertz had contracted when he was interested in buying the hotel. "Sure I did, everything was already done. I'm a businessman, why should you pay twice for the same work?"
Whatever the relationship between Sharaby and Hertz, Schneider said the issue is moot.
"It seems outrageous to me to wait 7 1/2 months to file this motion and ask the court to stop the sales," Schneider said during a hearing yesterday. "Even if everything the trustee says is true, he doesn't have the right to bring up the issue here [in bankruptcy court]."
Schneider did leave open the possibility that Davies could sue the Hertz Group for damages for backing out of the deal.
For now, Sharaby is continuing to market the condos at the Belvedere.
Yesterday, potential buyers streamed through the renovated hotel. Sharaby said 62 of the 112 condominiums have been sold in less than four months on the market. He said 10 have closed and another six are scheduled for settlement this week.
Sharaby said about five buyers canceled their settlements after hearing news about the alleged fraud. But he said sales are brisk and he doesn't expect to have any trouble selling the units. He said about five families have already moved into their condos.
Prices for the condos started at about $39,000 for a one-bedroom efficiency and ran up to $150,000 for an upper-level, two-bedroom unit. There are some three-bedroom units.
The styles of the condos range from traditional to ultra-modern with black lacquer bathroom fixtures.
Retail space at the Belvedere is selling for as little as $3,990 for 100 square feet to $28,000 for 800 square feet. Sharaby said 70 percent of the retail space, which includes the basement level and second and 11th floors, has been sold. The 13th floor, most recently used as a lounge, has been sold for an undisclosed price and will be converted to a four-bedroom penthouse, he added.
Sharaby said Martin Resnick, a local caterer, is negotiating to purchase the John Eager Howard Room, the Charles Room and the Terrace Room on the building's lobby level and the 12th-floor ballrooms.
So far, Sharaby said, he has spent $500,000 on renovations and expects the total bill to come to $2 million.