Belvedere's bankruptcy sale: the legacy of a trustee project

THE BALTIMORE SUN

There was no glory at the end. No debutante dancing, no New Year's Eve revelry that have been Belvedere Hotel trademarks since the hotel on East Chase Street opened in 1903.

No. The sale of Baltimore's beaux-arts gem of rococo columns and mansard roof, was determined last week in the hush of a bankruptcy court. A judge more accustomed to deciding the fate of failing appliance stores and car dealerships shook his head and said there was nothing more to be done.

It was a shame, he said, because the building was grander than its $5.5 million price tag would indicate. It should have fetched more than a Miami speculator offered to pay.

What the judge did not say was that it is a shame that financially strapped Baltimore is left holding the bag because of a series of crapshoots taken years ago by the now-defunct Baltimore trustees.

Although the hotel owes the city about $6.5 million in principal and interest on a series of loans that date back to 1977, the bankruptcy sale will net the city only $1 million in cash -- the rest goes to the banks that hold the first mortgage -- plus the dubious ownership of restaurants, bars and catering facilities located in the failing hotel.

To add insult to injury, the city might have to pay back as much as $125,000 of the cash should the court rule that Baltimore Gas and Electric Co., owed money for unpaid utility bills, has priority over the city as a creditor.

The city finds itself in bankruptcy court because the trustees for the Loan and Guarantee Program of Baltimore City, with the blessing of then-Mayor William Donald Schaefer, decided to make the loans even when private financiers were refusing to do so and when the city's own consultants were saying that Baltimore's hotel future was at the Inner Harbor, and not in residential Mount Vernon.

The trustees, a product of the Schaefer administration, managed a $200 million investment bank designed to finance beneficial projects seen as too risky for private financing. Mr. Schaefer appointed the trustees and exercised effective veto power over their decisions.

The trustees operated outside the normal checks and balances of city government. Millions of dollars were spent outside of the oversight of the City Council, which traditionally has held the city's budget purse strings.

When the bonds that provided seed money for the trustee program were placed before city voters for approval in 1974, the trustee arrangement was touted as an innovative revolving fund dedicated to spurring residential development in Baltimore. Still badly scarred by a decades-long legacy of segregation and poverty and by the 1969 riots, mid-1970s Baltimore was sorely in need of improvements to its housing.

But well before the trustee program, which was formally known as the Loan and Guarantee Program, could fulfill its mission of building housing, its assets were being diverted to help keep the Belvedere afloat.

In 1975 Victor Frenkil, a politically connected developer interested in acquiring a grand piano that had been left in the abandoned hotel, bought the Belvedere for $650,000. Within months, he was asking the trustees to guarantee a $4.5 million loan that would help finance the hotel's conversion into apartments.

In approving the loan guarantee, Charles L. Benton, the city's finance director who also ran the trustee bank, said the city's investment would be a modest one -- only $250,000 -- and that the money would be lost only if the Belvedere conversion proved to be a mistake.

"And, I should add, we are confident that will not happen," Mr. Benton assured members of the Board of Estimates.

But only four years would pass before the trustees again would come to the Belvedere's aid. His earlier predictions of success for apartments in the building notwithstanding, Mr. Frenkil told the trustees that the Belvedere could not be profitable unless the city helped him convert it back into a hotel.

And this time a loan guarantee would not be enough. The city would have to put up some real money -- $3 million in the form of a direct loan. The loan was approved by the Board of Estimates even though a New York consulting firm said that the harbor area was the city's prime hotel area.

The Belvedere loans were not the only trustee loans put together with little in the way of checks and balances.

The trustees spent $11 million to help Henry J. Knott, another influential developer, purchase and renovate a string of fire-damaged row houses in Bolton Hill -- the Beethoven Apartments. But it was only after Mr. Knott sued a prior owner of the buildings in 1985 that Baltimore citizens learned that $5.7 million of the money had been granted by the trustees to Mr. Knott with no public disclosure.

And before the 1983 mayoral primary, in which Mr. Schaefer faced a spirited black challenger, the mayor persuaded the trustees to ignore their own predictions of failure and lend money to Glenn Doughty, a local football hero, to build the Shake 'n' Bake roller skating rink and amusement center in a predominantly black section of West Baltimore. The rink flopped financially, the city was forced to take it over and cut its losses, and Mr. Doughty left town a bitter man.

The trustees came into existence when the Board of Estimates approved four trust agreements in 1976 and 1977. The agreements gave the trustees broad powers to quickly approve contracts, make investments and lend money, including money from the city's general fund, federal grants and proceeds from bond sales.

The trustees worked with chameleon-like adaptability, smoothly changing in character as the situation required.

When a deal needed the weight of the city behind it -- such as when federal dollars were involved -- the trustees cloaked themselves in the garb of city officialdom.

But when an arrangement called for the flexibility of a private company, the trustees took on a more independent character, negotiating deals in private and without the constraints of competitive bidding before easing them through the mayor-dominated Board of Estimates.

The trustees' flexibility impressed many observers, who hailed it as a governmental innovation that swept aside the inefficiencies of bureaucracy. Fans of the arrangement could point to 260 projects the trustees had a hand in bringing to fruition, including the Walbrook Junction shopping center, the Hyatt Regency Hotel, the Baltimore public school headquarters building and the Doris Johnson Medical Center in East Baltimore.

It vexed others, however, who said it opened the city's treasury to political cronies and questionable deals without the checks and balances expected of a democracy.

Increasingly, the trustee arrangement became a political liability to Mr. Schaefer as political opponents became openly critical of its excesses.

In 1986, goaded by aspirations to become Maryland's chief executive and with the gubernatorial primary only a few months away, Mr. Schaefer suddenly announced that the trustees had fulfilled their mission. After issuing a 10-year report that detailed their accomplishments in glowing terms, the trustees were disbanded.

But more than four years later, the citizens of Baltimore still live with decisions made by the trustees. And in some instances, a bankruptcy judge must be called in to pick up the pieces.

Martin C. Evans is a reporter for The Sun.

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