BANKING/ FINANCE

Detroit Hotel Seized in S&L; Failure Now Has ‘Positive Cash Flow’

The Pontchartrain Hotel, once a major and controversial investment for Lincoln Savings & Loan, may prove to be less of a burden on U.S. taxpayers than first thought.

The downtown Detroit hotel is now producing “positive cash flow,” which means it is able to pay its current debts from the income it generates. Thrift regulators are not saying how much past debt--accumulated during an extensive renovation project--is still owed.

Irvine-based Lincoln bought the hotel for $20 million in 1985, a year after Lincoln was purchased by a Phoenix company headed by Charles H. Keating Jr. After regulators raised objections to the purchase, Lincoln sold the hotel to a private group of investors that included Keating and other company insiders.

The Keating group obtained $37 million in loans from San Jacinto Savings in Houston, a subsidiary of Southmark Corp., to buy the hotel and complete the renovations. Lincoln provided some loans to the group and also made loans to Southmark and its subsidiaries.

Those transactions were also criticized by regulators, who charged that the Southmark-San Jacinto loans constituted a scheme to disguise the fact that Keating and his associates were, in effect, making illegal loans to themselves.

Last year, with Lincoln under federal stewardship and the Keating group unable to repay the loans, San Jacinto foreclosed on the Pontchartrain. Later, though, the thrift was seized by the federal government.

Regulators hired an affiliate of the Radisson lodging chain to manage the lavish hotel, and that management contract may run for some time. The Keating group’s non-Lincoln partners are suing Keating and San Jacinto over title to the hotel.