The founder of Hersha Hospitality Trust has filed a federal lawsuit claiming the Hilton Harrisburg sale in June to Colorado-based Greenwood Hospitality Group was fixed.
In the filing with the U.S. District Court for the Middle District of Pennsylvania, Hasu Shah alleges that Bill Kohl, the president and CEO of Harrisburg Hotel Corp. and current Greenwood partner, used his position to keep the Hilton off the market.
He wants U.S. Middle District Judge Christopher Conner to void the sale or award him unspecified damages.
The deal included the sale and management of the 341-room Hilton, a catalyst of downtown revitalization in the capital city, as well as the Bricco restaurant and management of the Hilton Garden Inn Hershey. It was for $22.2 million.
Shah said he was promised a chance to bid on the hotel should it ever go on the market. He had several meetings with Russ Ford, Harristown's president and CEO, in 2009 and 2010.
Shah said he was assured the process would be open, given Harristown's charitable purpose and legal duties to "promote community participation in important projects in Harrisburg's central business district."
Instead, the nonprofit corporation failed to provide any public notice or offering regarding the Hilton, the suit says, calling it a "conspiracy" and a "sweetheart deal." Kohl had an ownership and/or controlling interest in the Hilton both before and after the sale to Greenwood.
Shah said he spoke with Thomas Conran, a Greenwood principal, last month at a charity event in Harrisburg. It was there that he learned that Conran and Kohl had a previous relationship in connection with a prior investment, and that Greenwood offered Kohl a partnership stake in exchange for assistance in the Hilton acquisition.
"Mr. Kohl and Greenwood knew that the Harrisburg Hilton would sell for more if the Harrisburg Hilton were placed on the open market," the suit states.
Shah states in the suit that Ford had a fiduciary duty to act in good faith and to maximize the sale price of the Hilton. The sale price was the "floor" price, Shah said, because it merely satisfied existing loans on the hotel, which opened in 1990.
The Hilton was sold at a below-market value, which artificially depressed nearby property values, he added. Harrisburg and its residents also were harmed by the loss of additional tax revenue and/or sale proceeds, Shah claims.
Harristown officials were not immediately available for comment on the allegations. Kohl said this afternoon that he had not yet been served with papers regarding the suit. He declined comment.
The buyer has promised about $5 million in upgrades at the Hilton.