The Los Angeles Times from Los Angeles, California • 65

11IUKSDAY. DECEMBER 28. D11 I.OS AMill LS TIMliS HOTEL: Symbol of Thrift's Extravagance LINCOLN: Judge Rejects Request to Freeze Assets investments of Lincoln Savings viewed the Phoenician with alarm in its early stages of development, but their concerns ebbed somewhat later on. The hotel was not a major contributor to the collapse of Iincoln. which was seized because of risky loans and questionable investments in other real estate development projects.

Several months before the hotel opened, regulators placed the Phoenician on a special watch list. be issued next week by the state Savings and Loan Department It would apply to the 108 state-chartered thrifts. In interviews, state Savings and Loan Commissioner William Crawford and Chief Deputy Commissioner William Davis acknowledged that the order only applies to thrifts selling their own junk bonds and that they know of no institutions now selling such bonds in branches. They said their action is designed more to prevent what happened at Lincoln from happening again. "People can misunderstand these products," Crawford said.

In another Lincoln development, state Assemblymen Bob Epple (D-Norwalk) and Patrick Johnston (D-Stockton) announced a five-part "Lincoln Savings and Loan Reform Proposal." It would forbid employees of financial institutions from selling in branches the securities of the company they work for. It also is designed to make sure that customers clearly know that certain products available for purchase at financial institutions are uninsured. famous winter tourists such as the Astors and Rockefellers. But its glory days were over by the 1970s, and it closed in 1979. The Canadian investors planned to build a hotel known as the Four Seasons Phoenician Hotel, but they sold the leases in 1984 because American Continental.

Kealing's development firm, "made us an offer we couldn't refuse." one investor said. Construction of the Phoenician was a massive and turbulent undertaking. Keating quarreled, loudly with Phoenix city officials over how much water could be used on the property for the golf course, swimming pools, and decorative lakes and ponds. Delays caused by the fights were a "perfect example of how to bankrupt a developer." Keating charged at a news conference in 1987. The hotel is also entangled in messy litigation over unpaid bills.

Dozens of subcontractors claim that they arc still owed about $13 million, but they have yet to be paid because of a continuing dispute between the hotel and the general contractor. What eventually happens to the Phoenician depends largely on bureaucrats such as Anthony Scalzi. western region head of the Resolution Trust the government agency created this year to liquidate the assets of failed savings and loans. Scalzi confirmed that the Phoenician may eventually be sold to the Kuwaitis, but he also suggested that the bargaining would not be easy. "There is a chance" of a sale, he said in a recent interview, "but we are not going to give it away." Free-lance writer Steve Webb In Phoenix contributed to this story.

Continued from Dl hidden money overseas. Lawyers for investors said they will seek in Phoenix to have Keating ousted as head of American Continental and have a trustee appointed by a bankruptcy judge. Once that is done, they said, the trustee could then seek a court order to freeze Keating's assets. "It doesn't mean the issue is dead. It is unfortunate that it has to be a two-step process," said Ronald Rus.

a lawyer in Orange who represents investors. A similar move is being taken by the Resolution Trust the federal agency created this summer to mop up the nation's savings and loan mess. Officials from that agency last week asked a federal judge in Phoenix to oust KeaUng as chairman of American Continental, claiming that KeaUng and other company executives are depleting the remaining assets, much of it spent on legal and other fees in an effort to vindicate themselves. In a separate development Wednesday, state thrift regulators said they would prohibit the sale of high-risk junk bonds from the offices of California's state-chartered thrifts in the wake of the Lincoln scandal. Junk bonds are risky and typically have high yields.

Investors have complained that they bought American Continental junk bonds at Lincoln branches believing that they were putting their money in federally insured certificates of deposits. A temporary order is expected to Continued from Dt with the formidable tusk of finding a Imycr for the hold. One possible acquirer is the Kuwait Investment Office, which already has a 45 interest in the property. The hotel was plagued by building revisions and luxurious excesses thai added millions of dollars to its eventual cost, according to those familiar with its construction. The building changes were usually mandated by Keating and his wife.

Hut the early evidence also indicates that the hotel has fallen on hard times since Keating was removed. During one three-day stretch in early December, the Phoenician seemed uncommonly empty during the normally busy tourist season. The hotel's new government-installed manager. Hans D. Tur-novszky.

confirmed that the hotel had an occupancy rate of only 50 to 55 early this month, and angry Keating loyalists say the hotel has sustained widespread cancellations since the government seizure. The resort was 95 occupied at the time of the raid, regulators said. "I have good sources who tell me that November was way below expectations, and December looks just as bad. said Bradley J. Boland.

a Keating spokesman and son-in-law. He added that "1990 looks bad because no one wants to stay in a government-owned hotel." Keating, who is seeking to regain control of the Phoenician through litigation, argues that he could have eventually sold the resort for a profit of several hundred million dollars if he had been allowed to finish his plans to expand the resort to more than 850 rooms. In a telephone interview earlier this week, the 65-year-old developer said he also had plans to bolster the hotel's finances by selling some of the surrounding property for real estate development Those moves would have increased the Phoenician's value and made it more attractive to potential investors, particularly those from Japan who recently have paid princely sums for luxurious resort properties in the United States, he said. 'That resort was built to be sold." said Keating, who also maintained that the hotel cost only $275 million, not $296 million as banking regulators contend. Regulators who supervised the A If The hotel was plagued by building revisions and luxurious excesses that added millions of dollars to its eventual cost, according to those familiar with its construction.

The building changes were usually mandated by Keating and his wife. but they did not require Lincoln Savings to write off any value in the project, according to regulatory records that arc now part of a lawsuit between Keating and the government In late 1986. Lavcnthol Hor-wath estimated that the hotel was worth only about $200 million if it had an occupancy rate of 70. But regulators later agreed the property had a market value of $297 million after the Kuwait Investment Office (KIO) paid $134 million for its minority stake in the property, the regulatory records show. The KIO, based in London, is an Japan Expense Account From Associated Press TOKYO Japanese companies spent a record $32 billion on entertainment and gifts in 1988, more than the government plans to spend on defense next year, the National Tax Administration Agency reported Wednesday.

Total expense account spending rose by 8.7 from the previous high of $29 billion in 1987. said an agency official, speaking on condition of anonymity. He said the agency estimated not arm of the Kuwait Finance Ministry that invests in real estate and hotels worldwide. Officials of the agency could not be reached for comment. The Phoenician was a very personal undertaking for Keating, who closely supervised its construction.

His wife. Mary Elaine, designed the hotel interior after the firing of several professional interior designers. The family stamp is all over the grounds. One restaurant is named Mary Elaine's, and a nightclub is known as Charlie Charlie's. A crucifixion scene along a golf-cart trail behind the hotel is an apparent reflection of Kealing's deep religious beliefs.

Joe Gilbreath. general manager of a Phoenix firm that performed glass work at the Phoenician, recalled that Keating lived at the hotel in the two months prior to its Oct. 1. 1988, opening. "He was roaming around the place like a guard dog 20 hours a day." Gil-breath said.

At the same time, construction was plagued by costly changes. Gilbreath said Keating once ordered him to encase one marble stairway in glass, a job that cost more than $25,000, then ordered him to tear it down when he didn't like the look. "There were well over 1.000 change orders." Gilbreath said. "I've been in the construction! business for 31 years, and I've never seen anything like it." The history of the Phoenician goes back to the late 1970s, when Canadian investors leased the land around the historic Jokakc Inn, once the home of artist Jessie Benton Evans. The inn, turned into a tearoom that lock overnight visitors, was once a fashionable resting spot for Spending Hits Record total expense account spending based on a survey of 57,599 of Japan's 1.851,653 companies that closed their annual accounts in January, 1989.

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