Jun. 17, 2003 -- A Chicago bank has begun foreclosure proceedings against owners of the Avalon Hotel & Spa in Southwest Portland, more evidence of the toll that the economic downturn has taken on the hospitality industry. 

Corus Bank sued the owners of the Avalon on June 5, asking a Multnomah County Circuit Court judge to appoint an independent receiver to take charge of the project. The bank claimed Avalon Hotel Partners has failed to make nearly $2 million in mortgage payments since July. As a result, Corus has declared that $7.3 million in remaining principal and interest is immediately due. 

The slow economy, coupled with the Sept. 11 terrorist attacks, have put a lasting crimp in the tourism and travel business. Many hotels have been plagued by low occupancy and downward pressure on room rates. 

The Avalon, opened in May 2001 on the Willamette riverfront in the Johns Landing neighborhood, is not the only local victim. Governor Hotel Associates, which owns the Governor Hotel in downtown Portland, also faces a foreclosure action. PNW LLC, a Goldman Sachs affiliate, filed a foreclosure lawsuit against Governor Hotel Associates and its individual partners in August, demanding repayment of more than $15 million. 

"These are very difficult times in the hotel business," said Bruce Hraba, head of Waterford Hotels and Inns, a hotel management company that runs the Avalon and the Governor. "I'd venture to guess there's not a hotel in Portland that is not going back to its partners for additional money." 

In attempting to foreclose on the Avalon, Corus Bank is wading into a bitter and ongoing feud between Avalon developer A. Paul Brenneke and his investors in the project. Those investors seized control of the project from Brenneke in January, claiming the hotel was hemorrhaging money. 

Brenneke fired back May 14. His company, Avalon Hotel Developer LLC, sued the Avalon investors, accusing them of breaching their fiduciary duty. Among other claims, Brenneke's lawyers contended the investors' failure to pay on the Corus loan would result in foreclosure. Brenneke also claimed that various vendors and suppliers were not being paid. 

Robert Simon, attorney for Brenneke, said his client offered in April to assume the hotel's debt to Corus if investors would give him back control of the project. The investors declined, and Brenneke sued. 

"If the partners would just get out of the way and let (Brenneke) do his job, they wouldn't lose money," Simon said. "But they won't stand aside." 

Jim Walls, representative of the Avalon investor group, declined to comment. 

In its lawsuit, Corus claims Avalon's owners failed to make a $1.3 million payment due the bank in July 2002 and has not made a single monthly payment on the debt since January. 

The Avalon also has fallen behind on its taxes. According to Multnomah County records, the Avalon owes more than $175,000 in delinquent property taxes for 2002. 

Corus has asked the court to appoint Inverness Partners as receiver for the Avalon. A receiver would supervise operations of the hotel, spa and restaurant and monitor the operation's cash receipts and disbursements. 

Inverness was appointed receiver of the Governor in May. 

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(c) 2003, The Oregonian, Portland, Ore. Distributed by Knight Ridder/Tribune Business News. GS,