Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 19, 1995 TAG: 9503180037
SECTION: BUSINESS PAGE: F-1 EDITION: METRO
SOURCE: SANDRA BROWN KELLY STAFF WRITER
DATELINE: LENGTH: Long
"Fresh eyes and fresh ideas have been instrumental in sparking enthusiam," he said. He has run the 150-room inn since 1985 for Roanoke-based Krisch Realty Associates and its sister hotel management company, Krisch Hotels Inc. Powell worked for the Krisch companies 21 years.
As part of a bankruptcy settlement, this month Krisch transferred the Sheraton, the Holiday Inn-Salem and five other Western Virginia and North Carolina hotels to a new owner, LW-SSP2 of Atlanta. That move was to satisfy a $38 million debt.
Properties transferred included Holiday Inns in Lexington; Covington; Marion; and Dortches, N.C., plus the Airport Sheraton in Charlotte, N.C.
LW, in turn, has hired American General Hospitality Inc. of Dallas to manage the hotels and American's transition teams have been on site at each property to train the staff and establish computer linkups with its Dallas headquarters.
Although there are certain to be some new marketing to attract guests, the greatest changes at the hotels will be behind the scenes, said Powell. Accounting functions, such as billing and collecting, are being localized.
Two current Sheraton staffers will be promoted to a new accounting office, and two more people hired to replaced them, Powell said. He'll get training in April, when he will spend four days at the Dallas offices.
American General makes its managers responsible for the profitability of their hotel, and Powell and Ed Wray, manager at the Hoiliday Inn-Salem, said they welcome that change. Under Krisch management, decisions were more centralized at corporate headquarters, Wray said.
``I'll have more responsibility and better control,'' he said.
Wray, a native of Roanoke, has managed the Salem inn for four years, and had been employed by a Krisch company since 1967.
He employs 43 people at his 102-room inn, and he said he expects their jobs to be safe as long as they do the work.
American General's centralized purchasing should save money for the hotel, he said. The company maintains a computer base of vendors and their charges for various products and daily can search for best prices.
American General, which began in 1980 with four Holiday Inns and started expanding the following year, now has a portfolio of 95 inns, representing 16,500 rooms and 8,000 employees.
The long-term impact of the new leadership on the hotels is unclear, because LW-SSP2 and American General have been silent, standing behind policies against discussing their operations.
All total, the seven hotels that Krisch Realty conveyed represent about 850 rooms and 350 employees.
Although the Sheraton and Holiday Inn franchise contracts must be renegotiated, attorneys for LW indicated in court that those discussions were under way.
To renew, the Holiday Inns will have to be brought up to the new standards announced in September by Holiday Inns Worldwide, however, or the international affiliation will be lost.
The previous owners had estimated it would cost $1 million to make the mandated changes at the five Holiday Inns.
American General, therefore, will have to decide if the hotels are operating with the appropriate franchise for their areas or are the right type of inn within a franchise.
Holiday Inns Worldwide's luxury hotel product, Crowne Plazas, are dropping the Holiday Inn name. Two new lines, Holiday Inn Select and Holiday Inn Hotel & Suites, are being added. Other brands already being used are Holiday Inn Express and Holiday Inn SunSpree Resorts.
The intention, said Craig Smith, spokesman for Holiday Inn, is to have hotel images that fit certain market niches. For example, Holiday Inn Express rooms are similar to those in a standard Holiday Inn, but an Express unit does not have a restaurant, and its rates are 15 to 20 percent lower.
Of course, the idea is to improve occupancy rates, which were around 70 percent at the former Krisch hotels with the exception of the Marion and Dortches properties, where the occupancy rates were below 60 percent, according to Bankruptcy Court records.
The hotels all were profitable, according to documents filed in U.S. Bankruptcy Court, but were not bringing in enough money to meet debt payments on mortgages. Except for the Roanoke Sheraton, all of the hotels had mortgages that exceeded the value of the properties. The $3.5 million mortgage on the Roanoke Sheraton, held by Aetna Life Insurance Co., is about $800,000 less than the property's assessment, records show.
The transfer of ownership gives LW-SSP2 title to $25 million worth of properties for about $16 million, which was the discount price it paid for the original mortgages, according to courtroom testimony.
In one of those strange twists that happen in realms of finance, the new owner, LW-SSP2, is a partnership of Lehman Brothers and Westinghouse Corp., which through its former lending division, Westinghouse Credit Corp., originally extended credit to the hotel's previous owners, Joel and Sam Krisch, who are chairman and president, respectively, of the bankrupt companies.
|n n| The Krisch companies date to the mid-1980s, when, after selling a successful motel company for $300 million, the Krisches repurchased 24 of their former hotels to start a second-generation motel empire. Because of changes in the hotel market, the businesses struggled almost from the beginning.
To buy back the hotels, the Krisches borrowed $118 million from Westinghouse, a major lender in the hotel market for many years. But when the hotel business slumped in the late 1980s, Westinghouse also got overextended and sold mortgages to partnerships in which it held an interest.
The companies, all of which have acronyms for names, then proceded to foreclose on hotels in many parts of the country.
Sam Krisch held a foreclosure at bay for several years, partly by restructuring loans in 1992. The new loans required a $13 million payment in 1994; when it became obvious he wouldn't be able to make that payoff, Krisch filed for reorganization for three companies. They were Krisch Realty, which owned the properties; Krisch Hotels, a property management company; and Krisch American Inns, a publicly-traded company which had 49 percent interest in a U.S. Virgin Islands resort Krisch was developing.
Although the properties are transferred to new owners, the Krisch companies still are operating under court protection. Company officers either must submit a plan to reorganize the companies and keep their names, or must ask to have the Chapter 11 bankruptcy converted to a liquidation.
Company President Sam Krisch has not made a decision on that, attorneys said last week.
by CNB