Convention center stalled indefinitely

6/09 unedited tahoe mt. news


By Kathryn Reed

Randy Lane is not running to bankruptcy court. In fact, he’s not sure he’ll ever end up there.
As the face of Lake Tahoe Development Company – the firm which owns the property known locally as the hole in the ground at the state line – Lane remains optimistic.
On June 4 the South Lake Tahoe City Council unanimously agreed to deny the sale of Mello-Roos bonds that were designed to partially pay off LTDC’s debt.
Four notices of default have been filed against the developer by investors. The first was filed April 1 for nearly $1.6 million, the next was May 8 for almost $2.5 million, two on May 29, one for about $1.2 million and the other for approximately $7.5 million.
The legal notices give the developer three months from the date filed to satisfy those debts before foreclosure proceedings would begin.
“We definitely will continue to move the project forward. We have several good things in the hopper. We are not throwing in the towel,” Lane told the Tahoe Mountain News the day after the council said no to the early sale of Mello-Roos bonds. “We own the property. They may have debt against it, but we own it.”
At the June 2 public hearing, where the first three rows of council chambers were filled with consultants for the city and developer, much talk was how the bonds would save LTDC. Ultimately the council decided the risk to the city was too great of a gamble.
“I voted no on the Mello-Roos bonds because I felt that there was no plan from LTDC for continued construction and that eventually there would be a default on the bonds,” Mayor Jerry Birdwell said. “And the default would leave a black mark on the city of South Lake Tahoe’s rating in the market place. I feel badly for the people who may lose money as a result of him going into bankruptcy, but I must look to what I think is best for the overall community.”
Mello-Roos bonds have always been part of the process, but they were to be sold once the project was complete. The early sale would have bought Lane two years.
Lane said, “It was not a rescue plan for Lake Tahoe Development Company. If it was, we could have filed for bankruptcy several months ago.”
Prior to this month’s meetings, Lane spoke at length with the Mountain News.
“… we are talking to others who would cure the default, the existing debt. We have some opportunities,” the Zephyr Cove developer said. “This is legitimate, valid. It’s not smoke and mirrors. We are talking a partner or sale. It’s no people you would recognize in the hospitality industry because most of those people are upside down. These are people who know the business. They normally own the asset and do the same thing we do.”
One thing in Lane’s favor is the 29 parcels were just appraised at $100 million. He owes about $55 million. LTDC has about $90 million of the $144 million spent to date invested in the $410 million project – the largest development in South Lake Tahoe’s history.
“It’s not like it’s 11 acres of raw dirt. It has gone far beyond that. That creates some challenges,” Lane said. “Everyone will get paid in my opinion.”
The $20 million raised in condo sales a couple years ago was returned to buyers when it became evident the project was indefinitely stalled. It’s unknown if these people would be interested in owning at the Lake in the future.
Even though Lane said he will do everything he can to stay out of bankruptcy, he doesn’t speak of it as the death nil to his project.
“Everyone thinks that (bankruptcy) is a four letter word. It’s not,” Lane said. “At this moment nor ever has it been our preferred alternative. But if we had to use it to preserve our equity or to fend off someone, we would use that tool. But we don’t think we need to.”

City’s stance

Ta-hole. That’s how Gene Palazzo, South Lake Tahoe’s redevelopment manager, described the non-existent convention center during the May general plan meeting.
It’s a concrete slab with rebar sticking out of it and a wood fence around the perimeter.
Questions have been raised about the structural integrity while it sits exposed to the elements year after year. City staff and the developer assured the council all necessary tests will be done to ensure the materials in place are intact for when the next phase of construction begins.
Councilman Hal Cole, who helped negotiate the contract between the city and developer, said he was surprised LTDC was allowed to proceed without all the financing in place.
“He must have shown the council he had the money. I wasn’t there,” Cole said. (After serving on the council for 12 years, he was off for two years before being re-elected last November.)
Palazzo said the council at the time OK’d construction to begin with just a letter of credit from a San Francisco bank. However, letters of credit in this town have a history of being useless. Such was the case when American Ski Company, which used to own Heavenly Mountain Resort, secured such a letter to build the gondola. That letter, too, never produced cash and ASC sold the ski resort and filed for bankruptcy.
Lane said he was confident enough with the letter to start work in 2007, less than a year after the owner participation agreement was signed in July 2006.
“We went forward with the work because we didn’t think there was any issue with the loan,” Lane said. That September the bank rescinded the promissory note. “We had spent more than $25 million and we owed $22 million. We had to pay the contractors.”
The money to do so was secured at a higher rate of interest than what the San Francisco bank had offered.
Another issue is that the final map for the property has never been recorded. It was approved by the City Council on Oct. 31, 2007.
Palazzo said the final map, which would consolidate the properties into five parcels, can’t be filed until the lien holders give their OK or are paid off and therefore not involved.
The city’s redevelopment manager further said it is “not typical” to begin construction without recording a final map.
For the time being, the city has little recourse but to be mocked by residents for allowing another hole in the ground to fester. Most officials believe the hole is better than the rundown hotels that were there.
Plus, the property is valued higher now than when it had buildings on it. Even though Lane is not paying his property tax bill, the city is receiving it’s share through the state Teeter law.
The hotel tax collections are also up in this area since the demolition of the old hotels, while sales tax is down throughout the city. So this points to the city making the correct decision financially – at least as of today – to go forward with the convention center, hotel-condo, retail development.
But the big question remains – When will it no longer be a hole?