Translated literally from the Swahili language, "harambee" means "we pull together."
And that's what associates of supper club owner Edward Murphy were doing last week in the wake of reports of serious financial and accounting troubles at his Harambee House, an inner city luxury hotel.
Although the 160-room hotel at 2225 Georgia Ave. NW has been in various in various stages of planning and construction over the past decade, it has been open to the public for only a year. It haslived in a state of crisis virtually every day, suffering from original construction obstacles that prevented smooth operations, a management in chaos and inadequate funds to pay bills.
But theses problems, and allegations of mismanagement by the federal agency that has provided $10 million of the taxpayers' money to Harambee House, generally were not public knowledge until revealed last week in The Washington Post.
In the wake of The Post's article, the hotel switchboard was flooded with inquiries about the hotel's future."We lost some business" from people with advance reservations, said Walker Williams, the new president of Murphy's company, Murph's Hotel Corp., who said a news conference would be held this week to answer questions raised by The post report.
Although lost business is the last thing that Harambee needs if it is to survive, there is evidence of progress in what Williams said. Last year, it was difficult for many callers to get through to the Harambee switchboard for any reason because it wasn't staffed for many months. Former employes interviewed estimated that thousands of dollars of business was lost by that one simple operating problem.
In any event, it is clear that the most crucial point in the history of Harambee House-regarded as a symbol of black enterprise here and across the country-may be this weekend. A government-mandated accounting for what happened last year and a final agreement on new private capital for Harambee ar both due tomorrow..tThe federal government stated emphatically in a recent ultimatum to Murph's Hotel Corp, that no more taxpayers' money would be provided. Moreover, the Commerce Department's Economic Development Administration detailed eight specific steps that must be taken to guarantee a viable business operation.
Otherwise, the government will step in and foreclose on Harambee. In such an event, established hotel companies probably would bid on the property, which all parties agree is a first-rate accommodation complex. "It's classy, understated, not flamboyant," said one recent visitor. It has a swimming pool, night club, sauna and banquet facilities-all the amenities needed in such a hotel-and it compares favorably with a small Marriott Corp. hotel or one of the more luxurious Holiday Inns across the country.
But supper club owner Murphy has no plans of letting some other party move in now to take over his decade long dream.
If all goes according to schedule, Murph's Hotel Corp. will take the most important step toward assuming full control of the hotel and building for the future on Monday, when papers are to be signed that represent a substantial infusion of new private capital. beyond that level and expects to have half a million dollars of new money in the bank early in the week.
Witherspoon Development Corp. and Opportunity Funding Corp. each have agreed to invest $250,000. Witherspoon, founded under auspices of the Ford Foundation, earlier had loaned $105,000 to the venture, and the investing company has agreed to convert that amount to a stock interest as well-thereby reducing the hotel's monthly debt payments. Opportunity Funding is a separate "social purpose" investor.
According to Williams, these new equity investments should provide the necessary "casg in the drawer" to operate Harambee House for the nest five years, "based on projections of no cash flow deficits again."
The rationale for such investments at this time, Williams continued, is twofold:
"This is a highly visible symbol of minority business achievement and development," the failure of which would set back all minority business ventures "for some years to come."
"The area is blighted...but has started to see a turnaround...it will be a catalyst for the whole area."
Indeed, it was the concept of Harambee House as a catalyst that convinced EDA to provide assistance to Ed Murphy in the first place. And there are signs that change is taking place.
According to Robert T. Hall, assistant Commerce secretary for economic development and head of the EDA, Harambee House "clearly was a protect-ailbeit ambitious-to see what could be done to begin to turn around" the District's Shaw renewal area.
Harambee is one of the biggest business development projects ever undertaken by the EDA, and the decision to back what agency officers describe as a "marginal supper club owner" divided the EDA staff from the start. Although Murphy's firm has received some $2.5 million of government loans, the property actually is owned by a Shaw community group, Peoples Involvement Corp. Accounts differ on how much of a role was played in the hotel's management by Murphy, whose personality and previous business record here was cited by some government officials who opposed providing him with any funding.
But Hall said that a look at Washington's booming tourism seemed to indicate that a minority-owned hotelwould "lend itself to tapping a good business."
Although the government could have encouraged "Hilton Hotels to put a facility in...the attempt here was to have a community-based, blackowned operator with a quality facility that would appeal to a larger population," Hall said.
Earlier this month, when the hotel celebrated its first birthday with a $20-per-person party, it appeared that the growing pains had given way to some new confidence.
A live band played as consultants, accountants, hotel employes, Peoples Involvement Corp. board members and others feasted on hot and cold seafood hors d'oeuvre-some designed in the shape of a large fish.
The crowd, mostly young adults and middle-aged people, was dressed stylishly. And upstairs, above the elegant supper club, about 70 percent of the hotel's 160 rooms were occupied-substantially higher than average occupancy of 55 percent in the last nine months of 1978.
It was a happy occasion, befitting a black business venture that EDA chief Hall calls "an important development in the eyes of the federal and District governments and the community."
Symbolically, the party seemed to say that past problems were being relegated to the history book of what has been called a classic case of government missteps in trying to aid black business. In fact, things had not gone well for Murphy since he first planned the hotel in 1969.
That was the year he went to the EDA with his idea, but found that, while there was interest in the concept of starting to develop business and jobs along Georgia Avenue, the agency could not enter into a lending contract with an individual.
Murphy was put in touch with PIC, a federally funded antipoverty agency. Evenentually, PIC obtained nearly $7.2 million from EDA-half as a loan and the balance in a grant. PIC then used that money to finance construction, and it has leased the hotel property it nominally owns to Murph's Hotel Corp. for 40 years.
At a press conference in June 1971, then-Commerce Secretary Maurice Stans announced federal approval for financing a hotel on the site of Murphy's former supper club. That September, Murphy closed his supper club to get ready for construction. But there was one delay after another. For a while, Murphy collected unemployment and, in mid-1974, he opened another supper club across from the old site.
Construction of the hotel did not begin until July 1975, and completion was scheduled for early 1977. According to the District's planning director, Assistant City Administrator James O. Gibson, who headed Murph's Hotel Corp. until joining Mayor marion Barry's administration, construction delays were a major obstacle.
Gibson said that Murphy had received commitments from National Bank of Washington and other sources for loans to finance initial business early in the 1970s, pending actual construction. But internal conflicts in the Commerce Department over Murphy's proposal meant that every step in planning took months to resolve.
"Murphy was obviously and materially adversely affected" by the delays, which made the hotel project appear moribund and had the effect of cancelling earlier financial agreement, gibson stated. "The equity base and financing was based on timetables...there developed considerable skepticism, not the best atmosphere."
The end result was a subtle change in the character of the Harambee House-from a proposed for-profit venture seeking initial government aid to a full-fledged Cmmerce Department "project," relying almost exclusively on taxpayer funds for everything.
To protect the government investment, the department's EDA monitored closely the planning construction and initial operation of the hotel. And, according to Gibson, that close supervision may be the hotel's undoing.
"The new hotel is a classic government-launched minority enterprise and it is already progressing well in competition. . . Nevertheless, it now faces the immediate threat of liquidation, primarily because of persistent confusion, indecision and bureaucratic infighting in the Department of Commerce," Gibson told the EDA last fall, after the government finally became aware of operating problems.
When the EDA threatened to foreclose, Gibson countered with allegations about the government agency for which President Carter is now proposing a major expansion as the government's principal provider of economic assistance. Murph's Hotel charges can be summzrized as follows:
It assumed operational control and supervision of the hotel construction and then failed to complete the project on time.
The EDA agreed and even encouraged Murphy's company to use operating capital designed for the hotel business to cover protracted costa that resulted from the construction delays.
When operating funds ran out shortly after the opening in March 1978, EDA was reluctant to go forward with new aid to compensate for delays and construction-related damages, which Murph's Hotel Corp. officials said was promised.
Hotel management decisions and controls were assumed by the EDA, "all of which interfered with the private owners' ability to institute and carry out a consistent, coherent management plan."
Murph's Hotel Corp. had closed on a $600,000 working capital loan from the EDA on May 27, 1977, designed to cover pre-opening obligations and provide a cushion against projected losses for three years. At that time, the EDA promised the building would be completed and ready for occupancy by Aug. 1, 1977.
Titan Atlantic Construction Co., the general contractor for Harambee House, walked off the site several months later. Over the objections of Murph's and Peoples Involvement Corp., the EDA brought Titan back to finish the hotel. Scheduled dates for openings were changed regularly as construction problems, and lack of construction work, led to a major confrontation between Murphy and PIC on one side and the EDA on the other.
Margaret McCall, chairwoman of the 39-member PIC board of directors, stated that Titan Atlantic walked off the job. "We wouldn't pay them because they didn't finish the work," she said.More money had to be paid to another contractor to get some of the work done. Only recently did Titan Atlantic and PIC settle differences with the payment of $312,000 to the construction firm, McCall said. And Harambee now is planning to use some of its new private capital to correct additional, alleged construction and equipment purchase mistakes.
Such was the environment when Murphy moved to get the hotel open, ready or not, on March 7, 1978.
These problems were compounded by obvious mismanagement. One former employe, who worked in the hotel industry before joining Harambee and who now works at a leading hotel in the city, recalled that boxes of food were left open at night. When evidence of stealing was found and reported, representatives of Inn Keepers Inc., a Chicago hotel management company hired at EDA insistence to run the hotel, the only response was said to be: "We'll have to look into that."
Whereas most new hotels open a floor at a time, with the staff built up gradually to handle a growing business, Harambee opened with a full staff and all floors available.
Inn Keepers was paid $7,500 a month for its management services, but the firm's key liaison with the hotel reportedly came to Washington only three days a week from Richmond. The hotel has had several general managers and four controllers. Murphy wa told by some of his workers that Inn Keepers was not working in his interest, and conflicts between Murphy and Inn Keepers increased daily.
In October, Murph's Hotel Corp. dismissed Inn Keepers, and the Chicago company has sued in D.C. Superior Court, asking for $52,500 because of alleged breach of contract. Murphy has answered with litigation seeking $500,000 for alleged negligence and damages caused by Inn Keepers. If these cases come to trial, answers may be provided to questions about the fault for poor management.
Complicating these operating difficulties were inadequate expense projections that had been provided by EDA. For example, Harambee's utility cost estimates were based upon 1972 figures, and did not account for soaring prices for the all-electric facility in the wake of the Arab oil embargo. EDA's estimates for labor costs were based upon the statutory minimum wage figures rather than union scale wages at most D.C. hotels.
With higher-than-anticipated costs, Harambee House suffered cash flow problems and fell behind in paying many bills. The accounting system was a shambles from the start, and many dollars of revenue never were accounted for.
"One of the managers hired by Inn Keepers was making $537 a week had a suite of rooms and free telephone service," a former hotel employe said. "He made a $37 phone call to Germany once and ran up a $600 liquor bill which he never paid for."
Throughout this turmoil, Harambee House was employing some 210 persons at a cost of $80,000 every two weeks. This is about double the amount for other hotels of similar size and, in recent months, the staff has been cut to 150 and the payroll to about $50,000 every two weeks, according to Laurence Pitsenberger, currently EDA's project manager for Harambee House.
When occupancy was running about 59 percent of the Harambee's 160 rooms, revenues were averaging $9,000 a day. At one point, it was estimated that more than 90 percent of the salaries at Harambee House-allegedly set by the management company-were out of line with those paid in other hotels of similar size.
With the threat of insolvency imminent, Murph's Hotel Corp. and EDA agreed that the government would use Care and Preservation of Collateral (CPC) funds-normally used only when a federally aided project has been closed-to sustain the hotel until a new arrangement could be worked out.
With these federal funds being used for payrolls and bills, the EDA prohibited the hotel from advertising, sought to prevent it from offering live entertainment in the supper club and instructed Murph's Hotel Corp. not to pay D.C. taxes. The EDA assumed control of disbursements and prevented Murph's officials from signing checks.
Said EDA's Karras, reviewing the hotel project, "We weren't blind about catapulting Murphy from supper club manager to running a deluxe hotel-we knew there was a need to reinforce Murph's early on with technical assistance." He conceded that all did not go well at Harambee House in its first year and said the opening probably came two or three months before it should have-draining working capital from Murphy's limited unds.
"The number of employes there was a problem," said Hall, who heads the should have been tighter.
"Over the last several months, weive called for a structured, serious workout plan (a plan to correct problems) from Murph's. They came up with a package we found acceptable. We're prepared to go one more round with them."
When the Harambee opened last year, it had cost more than $7.6 million, half in the form of a loan and half in grant money. The cost breakdown: construction, $6 million; interest expense, $410,000; legal and administrative expense, $158,900; land, $624,900; architectural engineering, $310,000; and equipment, $169,200.
Today, the federal investment is $10 million, and Harambee has a new management team headed by Williams, a former fund-raiser for the National Urban Coalition and airline marketing executive who has his own financial development consulting firm here.
A new general manager, Derk Mattocks, was hired away from the Holiday Inn in Georgetown. He has a record of winning trophies in Holiday Inn competion for "most complimented hotel" and "best food or sales management." Murphy, Williams and EDA's Karras all praised Mattocks and his attention to business disciplines.
Still to be hired is a full time controller, a person with accounting and hotel experience. The EDA said record-keeping in the past was a shambles, even under accountants that it had brought in, and the agency has demanded that "paramount" among needed improvements is implementation of financial controls by a competent controller.
Finally, the government must study the audit for 1978 due Monday from Touche, Ross & Co., which is supposed to detail the extent of missing money.
Hotel figures show that occupancy averaged 55 percent last year with little advertising and without a sales manager for six months. The projected occupancy this year is an average of 60 percent and, to date, the hotel is running about 10 percent ahead.
In the lobby of the hotel is a bulletin board. It say: "Welcome to Harambee House. Unity is our motto. Our product is hospitality. Service is our specialty." Trade groups, government agencies, universities, such corporations Avon and International Harvester and such nations as Nigeria, Ghana, Senegal and Ivory Coast have met there.
"I really think it can fly," says Margaret McCall, head of PIC. Says Murphy: "The future looks bright." And, according to Williams, "We can make it . . .we have a new motto around here, that this is a new beginning."
It won't be easy.