Home Federal Dropped From U.S. Grant Suit

Home Federal Savings and attorneys representing a group of U. S. Grant Hotel investors that is suing the hotel’s general partner and other parties have reached an agreement whereby Home Federal will be dropped from the suit.

In exchange for being excluded from the suit, Home Federal agreed not to foreclose on the troubled downtown property before 1991. That’s an important stipulation for investors because a foreclosure would constitute a change of ownership and trigger “disgorgement” of $5.1 million in tax benefits taken by the hotel’s 350 limited partner investors, the group’s attorneys said Monday.

Started to Foreclose

Home Federal holds a second mortgage on the hotel and is owed nearly $40 million in principal and unpaid interest. The S&L; began foreclosure proceedings against the hotel last year after the hotel missed several mortgage payments. A foreclosure sale of the property by Home Fed was averted in February of this year when the hotel owners filed for protection under Chapter 11 of the federal bankruptcy code.

In Trouble Since Opening

The 76-year-old hotel reopened in 1985 after a four-year, $73-million renovation and has been in financial trouble ever since. The owners are expected to file a reorganization plan with U.S. Bankruptcy Judge Louise Malugen within the next two weeks.

The lawsuit filed in U.S. District Court here in December, 1987 by two U.S. Grant investors accused Sybedon Corp., the New York investment firm that raised $30 million in equity funds from investors, and other parties including Home Federal of violations of securities laws, breaches of fiduciary duties and legal and professional malpractice.

Also named as defendants in the suit were Prudential-Bache Securities, hotel redeveloper Christopher Sickels, Laventhol & Horwath accounting firm and others. The suit now includes about 25 Grant investors, some of whom paid as much as $100,000 for their limited partnership interests.

Besides preserving the $5.1 million in tax benefits for investors, the agreement with Home Federal will save hotel investors from paying $1.6 million in overdue tax interest and penalties. The accord also excuses them from paying $3.1 million in installment payments that were due in 1991 under terms of their original investments.

Attorneys Michael Aguirre, Patricia Meyer and James Krause said that no other defendants have been dropped from the suit and that a trial may occur in early 1990.

Home Federal spokeswoman Monica Wiley said the S&L;’s exclusion from the investors’ suit will enable it to focus on negotiating a workable reorganization plan.