Rising from the ashes - Phoenician Resort near Phoenix, Arizona

Dubbed "Club Fed" when the Resolution Trust Corp. (RTC) took it over in 1989, the posh Phoenician Resort outside Phoenix was once the hub of Charles Keating's empire and, with its marble tubs and mother-of-pearl swimming pool, a notable specimen of '80s indulgence. Keating, former chairman of the Lincoln Savings and Loan Association, has been convicted in California of securities fraud and awaits trial in federal court on racketeering, fraud and other charges. The Phoenician's future looks somewhat brighter: Late last year, the RTC sold it to the Kuwaitis.

Construction of the lavish retreat in the late 1980s drew considerable attention -- including that of queasy federal regulators, who didn't like the fact that it was bankrolled to the tune of almost $300 million by Lincoln customers' federally guaranteed deposits and thought Keating was overvaluing it. But Keating found an investor in 1987 to buy 45 percent of the Phoenician and another hotel, the Crescent. That minority investor was the Kuwaiti government.

Lincoln, for a variety of reasons, failed anyway; the government seized it in 1989, and control of the Phoenician and Crescent with it. Last October the Kuwaitis agreed to take the hotels off the RTC's hands, buying the 55 percent they didn't already own for $111.5 million. The Kuwaitis put just 10 percent down; the RTC financed the rest through 1996 with a 10.5 percent interest rate.

Did taxpayers get a good deal? One Arizona hotel industry analyst says the Kuwaitis paid more than the hotels were worth; another agrees, but says the RTC could have gotten even more if it had taken bids.

The question in their minds and others is whether Kuwait may have agreed to buy the properties for more than book value -- provided the RTC shooed other bidders away -- as a small part of some unspecified payback for U.S. help in the gulf war. The conclusion is the "ultimate in deductive reasoning," says Richard Warnich, an analyst with Phoenix's Young Warnick Cunningham & Co. "We had just helped Kuwait liberate their country. They overpaid on these properties. I'm just trying to understand what happened."

Asked whether the deal was an act of thanks by Kuwait, spokesperson Kevin Shields of the RTC says "absolutely not." He also says the government couldn't take bids from other interested buyers: Keating's original contract with the Kuwaitis gave them first rights to buy the remainder of the properties.

Through all the turmoil, the Phoenician, where room rates range from nearly $300 to almost $1,300, has been up and running. Recent guests included members of the American Bankruptcy Institute, which held a conference there in December -- a fitting tribute to the resort's recent past. Among the speakers? Dennis DeConcini (D-Ariz.), one of five senators investigated by the Senate Ethics Committee for intervening with federal regulators on Keating's behalf. The committee found that DeConcini's conduct in the matter was "inappropriate," but took no action against him.

COPYRIGHT 1992 Common Cause Magazine
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