A deal to purchase the bankrupt Eldridge Hotel is off.
Rob Phillips, general manager and majority owner of the hotel, confirmed Monday he rejected a $2.3 million offer from former Kansas University All-American Bobby Douglass and Mitchell Chaney, a Brownsville, Texas, attorney and KU graduate.
Phillips said he rejected the offer for the 48-room hotel at 701 Mass. because it included only $50,000 to pay unsecured creditors, which are businesses and individuals owed money by the hotel. Phillips declined to say how much the hotel owes unsecured creditors. When the company filed for bankruptcy protection in December, it listed $172,231 in debt to 149 unsecured creditors.
"I will not accept a plan that doesn't take care of all the creditors," Phillips said. "They knew that going into this. I'm not going to waver on it."
Douglass and Chaney said Monday they were disappointed and didn't plan to reopen negotiations with Phillips. They did not rule out the possibility of completing a purchase of the downtown landmark if Phillips has a change of heart.
"What I can say is that we were extremely interested and I think we got very, very close to completing a deal," Chaney said. "It is hard to speculate about what happens now."
"I think it is really up to other people, at this point," Douglass said.
The pair declined further comment on the collapse of the talks.
Surprising turn of events
But in a bankruptcy court filing made late Friday in Kansas City, Kan., the pair called the rejection surprising.
Douglass and Chaney had negotiated a preliminary deal with Phillips in May. Since then, the pair had been studying the hotel's finances and successfully renegotiated terms with its largest lenders. They also had secured a deal with an unidentified third party to provide additional parking for the hotel, addressing an issue Phillips often blamed for its continuing struggles.
The Friday court filings also criticized Phillips for not adequately disclosing costs of needed capital improvements. During an inspection of the property, the documents say, an abandoned underground oil tank was found in the basement, triggering a series of expensive environmental tests.
The unexpected expenses increased what Douglass and Chaney would have to invest from the May estimate of $1.9 million to $2.3 million. That increase meant Douglass and Chaney had to reduce the amount of money they could pay unsecured creditors.
Phillips denied he was hiding anything from Douglass and Chaney.
The court documents also said Phillips rejected the deal because it didn't include a large enough payment to Phillips. The deal would have paid him $10,000 per year for three years to serve as a consultant to the business.
Phillips denied that was a reason he rejected the offer.
"I'm not worried about me," Phillips said. "Honestly, I'm not."
Earlier court documents indicated Phillips would receive an annual salary of $72,000 and a one-time payment of $25,000 to provide management assistance during a transition in ownership.
Phillips declined to speculate whether negotiations would be restarted. He also declined to comment on whether there were other parties interested in the business or if he was contemplating auctioning off the hotel's assets to pay its debts.
Douglass and Chaney became interested in the hotel, which is listed on the National Register of Historic Places, after learning of its financial troubles earlier this year.
Douglass was an All-American quarterback at KU from 1966 to 1968 and went on to play 13 years in the National Football League. After his football career, he became active in the management of several restaurants in the Chicago area, where he lives.
Chaney is a KU graduate who said he had been interested in the Eldridge for years. He met his wife, Susan, while tending bar in the building in the late 1970s, when she was a waitress in the building's restaurant. He has experience in historic preservation.
Chaney and Douglass joined forces to attempt to buy the hotel after learning about each other's interests in the property.
When the hotel filed for bankruptcy protection in December, $108,982 in unpaid guest, sales and Kansas withholding taxes were owed. The hotel also owed about $160,000 to the Internal Revenue Service. Baldwin-based Mid-America Bank had begun foreclosure proceedings on the hotel after its owners missed a $1.3 million loan payment.
The foreclosure proceedings have been put on pause by the bankruptcy court, although bank officials have filed a motion to restart those proceedings. The court has not ruled on that motion.