Saturday, September 23, 2023

The Deal to Transform Ukiah’s Palace Hotel Collapses

The brick facade of Ukiah’s Palace Hotel [Photograph by Matt LaFever]

In a stunning turn of events, city-supported plans of an investor to transform the historic Palace Hotel into a commercial anchor for downtown Ukiah have collapsed.

Jitu Ishwar, the current owner of the derelict hotel property, this past week refused to accept the final purchase terms from investor Minal Shankar.

Instead, Ishwar made a side deal with a new group of local investors who are reportedly led by a downtown restaurateur. Shankar, city officials, and business and community leaders expressed dismay at the turn of events. It dashed their hopes that finally the ‘moment’ for restoration of the Palace as the town’s centerpiece had arrived.

Deputy City Manager Shannon Riley called the abrupt resale ‘very disappointing.’

Shankar, said Riley, was “extremely sophisticated, well-connected, and collaborative, and we were very hopeful that we close to seeing the renovation of this beautiful building.”

Riley noted that Ishwar, who is a principal in a group that owns many of the motels in Mendocino and Lake counties, has held title to the Palace property for four years.

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“It has been in the current owner’s hands since 2019 with zero progress,” she said.

Shankar said she was dismayed that Ishwar chose to walk away from their tentative deal and make a new one that negates months of tax financing studies, architectural and structural reviews, and design work by recognized San Francisco experts in historic renovation.

“I put a lot of time, effort, and money into this project over the past two years. I am extremely disappointed by how things went down,” said Shankar.

Nevertheless, said Shankar, she understood the “risks when I took this on.”

“I still believe that rehabilitating the Palace Hotel would be a great economic win for the city and the community. I wish them the best of luck in making that happen,” said Shankar.

Ishwar and his new buyers have yet to meet with city representatives and outline new Palace possibilities as they see them. Ishwar this week declined to speak about his decision to tank the Shankar proposal and do a quick resale to a new group of local buyers, who officially remain unidentified.

Attorney Atilla Panczel with the Duncan James law firm said he represents the new buyers, but he would not disclose their identities.

“The purchase agreement includes a confidentiality clause,” said Panczel.

Panczel described the buyers as a “serious group with a lot of capital, and ideas.”

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“There will be a flurry of activity over the next few months to close the deal, and began a city-mandated permitting process,” said Panczel.

The Palace, through the actions of a court-appointed receiver, has been in the hands of Ishwar since 2019. Ishwar and his wife Puru invested about $850,000 and ended up with a lien against the hotel property. He eventually secured the title from a court-appointed receiver and put the hotel up for sale.

Shankar in April 2022 agreed to purchase the Palace but insisted on a 9-month long escrow so inspections, structural analyses, and permitting requirements could be agreed upon. The escrow was extended by necessity but, in the end, Shankar could not reach an agreement with Ishwar about how he was to be paid off so she could take clear title to the property.

What is clear now is that the collapse of the Shankar proposal, and the emergence of a new sales agreement means that at the very least any substantive work on the Palace will be delayed for months if not years.

Tom Liden, a local photographer and a member of a ‘Friends of the Palace’ Committee that the city formed under previous ownership, said he remains hopeful. “I think something great can still happen with the Palace.”

Liden is friends with a local restaurateur who apparently is among the new buyers. “Things are very sensitive at this point, and he would prefer to talk only when escrow closes and plans are beginning to fall into place,” said Liden.

Stephen Johnson, Ishwar’s attorney, said he could not comment on his client’s decision to turn to a new deal with a different set of buyers.

About Shankar, Johnson said, “She didn’t close the deal. It would be unfair to suggest he did anything wrong.”

Riley, the deputy city manager, said during Ishwar’s ownership nothing has been done to stabilize the historic structure or make any improvements.

For three decades or more, city officials have attempted to work with a variety of owners to save the Palace and keep it from being demolished for a downtown parking lot as some people advocate.

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“At the end of the day, however, this is a private property transaction,” said Riley.

The Palace consists of four structures built between the years 1891 and 1929, and it is listed on the National Register of Historic Places. It is the finest example of brick construction of the period remaining in Ukiah, according to the National Register.

In total the Palace is a 60,000-square-foot structure that historically had 90 rooms plus a bar, restaurant, ballroom, barbershop and a few retail stores. It has been stripped of many fine features by previous owners, including a large mural that once dominated a legendary bar, the Black Bart Room. H

ow current Palace property owner Ishwar ended up with ownership of a celebrated landmark is another twist in a knotty history since the hotel was shuttered for good in the late 1980s.

Ishwar is the principal in a group that owns the largest number of motels in Mendocino and Lake counties and recently constructed a new Holiday Inn in the Redwood Business Park near Costco.

Ishwar ended up being the Palace’s default owner after the city wrest control from a longtime Marin investor who made periodic efforts to clean up the hotel but was unable to begin any significant structural repairs or begin renovation.

Court documents show that Ishwar successfully bid for the Palace ownership in 2019 which included covering unpaid receivership fees and money advanced to a court-appointed receiver, a Santa Monica attorney.

In 2022, Ishwar won clear title to the Palace property, paving the way for its eventual sale. Until then, the title to the property had been tied up in receivership issues.

Shankar, a newcomer to the Ukiah Valley, is a successful online financier who was lauded in 2021 by the Canadian Lenders Association for being a woman ‘Leader in Lending” for her role in founding and becoming CEO of Easly, a Toronto-based firm that in a few short years secured $77 million in research and development funding for startups. She is a graduate of Harvey Mudd College in Claremont, and the prestigious Stern School of Business at New York University.

Shankar purchase a house overlooking Lake Mendocino in 2020 during the Covid era, so she could be close to her San Francisco-based parents.

Shankar’s interest in the Palace began randomly. She noticed a fading-for-sale sign on its North State Street exterior one day and became curious about the possibilities of restoring the handsome old building.

After striking a purchase agreement with Ishwar, Shankar earnestly began to pull together a team with the goal of returning the Palace to the town’s centerpiece.

Shankar collaborated with San Francisco designers Tommy Haddock of Alto Architecture and Carolyn Kieran, a 25-year principal with Page & Turnbull, a firm with a long line of restoration credentials including the landmark Ferry Building. Together they produced sophisticated plans to bring the Palace back to life.

In essence, the plans called for a boutique hotel anchored by an upscale restaurant and bar, retail spaces carved out of the street-level portions of the hotel, specialty shops surrounding an interior courtyard, and an event center/luxury rooms on the roof with spectacular views of the Ukiah Valley.

It took months of teams of renovation experts combing the Palace to determine structural needs, and what was needed to reshape the interior of the building.

Finally, with plans in hand and tax financing secure, Shankar made her move to wrap up an extended escrow with Ishwar.

Unexpectedly the process dragged on for several weeks, however, and whispers started to circulate that Ishwar was resisting Shankar’s plans in hopes of striking a better and more lucrative deal with other buyers once the possibilities of Shankar’s year-long efforts became known.

Deputy City Manager Riley said the Palace revival is key to hopes for expanded tourism in the Ukiah Valley. Wineries, the nationally recognized Grace Hudson Museum, a developing restaurant row, recreational opportunities, and abundant natural resources draw some visitors.

“What we don’t have is the caliber of lodging that would attract the type of visitors that travel to Sonoma and Napa counties, or the Mendocino Coast.”

Riley said restoration of the Palace “isn’t about gentrification of our city. Ukiah is never going to be Healdsburg.”

“We are the county seat, and that comes with all kinds of essential services: courts, jail, social services, a community college, medical facilities, homeless shelters, and so on,” said Riley. “Those things will always keep us humble, and it’s what marks this such a genuine, diverse, and hospitable community.”

With state plans for the construction of a new $140 million Mendocino County Courthouse away from the downtown core, Riley said it is even more important that the Palace become an anchor. The current courthouse generates a steady volume of foot traffic during the day, but at night the surrounding streets are largely devoid of people except for patrons of downtown restaurants.

Done right, the Palace has the potential to be a catalyst for a more vibrant business district, events, and expansion of efforts to restore other historic buildings.

“We can become a better version of ourselves,” said Riley.

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  1. “What we don’t have is the caliber of lodging that would attract the type of visitors that travel to Sonoma and Napa counties, or the Mendocino Coast.”

    Napa and Sonoma have plenty of modern hotels with old world charms placed around wineries and vineyards. At the going rate, an earthquake will bring this old hotel down and then it will be a piling of rubble with liens attached to it.

  2. The on going saga of the Palace Hotel revolves around huge amounts of money that have been thrown into it before and will need to be thrown into the”money pit” again. It needs to be demolished and hopefully gone before it collapses. The last renovation back in the late 70’s was all about money laundering, of course the bar and “Back Door” nightclub shined for a few years then wore off. It’s a great location for almost anything but the pile of bricks that sits there now. Ukiah has become a one night stand for tourist lodging and will remain as such until many other things affecting tourism are dealt with. How many restaurants have started in the last 40 years that still around? Ukiah has become the place where restaurants come to die . Home prices and rents that are sky high and little if any industry left to employ workers to afford the prices. I’ve always loved the Ukiah Valley since I first moved there in 1976, way different times then. There were lumber mills and Masonite Corp. ,grapes, pears and of course the illegal cannabis industry, all providing jobs and income that created more jobs and income. Yet these days there is next to nothing in employment opportunities and huge city and county costs that are not being dealt with appropriately. To believe that the Palace will rise from the ruble like a Phoenix and save the downtown is to believe in the impossible dream..Quixotic indeed!

    • It’s unfortunate. It’s clear that this didn’t happen overnight but policy decisions over time led to this state it is in now. Why is this area so hell bent on saving really old buildings to the point of not being used for decades on end? It’s a self Inflicted wound and slow development to a crawl. Ukiah is the Capital City of Mendo and the gates to the outside world in terms of funding and policy making and logistics. It should be the shinning example of how to make this county successful.

  3. It’s not the nimbys.. it’s the reluctance of the property owner to let it go for the good of all society. I get that everyone has a bottom line, but come the f on!
    Personally I dream of a beautiful garden there, a tree or two? What a beautiful green corridor to School street and the west side.
    But I’m just a dreamer.

    • The county isn’t spending any money on the court house. The state of CA is paying for it. If you haven’t noticed the court house is a few decades behind the times.

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