Bad Season As The Four Seasons Falls Into Foreclosure

Posted: Thursday, October 8, 2009 | Posted by Chico Brisbane | Labels: , , ,

More than 300 hotels were in foreclosure or default on their loans as of Sept. 30 -- a nearly fivefold increase since the start of the year, according to an industry report released Tuesday.The list of troubled properties includes the St. Regis Monarch Beach in Dana Point, the downtown Los Angeles Marriott, the Sheraton Universal and the W hotel in San Diego.

Most struggling hotels remain open, but industry experts believe many properties are likely to be closed down in the months ahead, even if they are not in foreclosure, because they are losing so much money. The owners of the renowned Quail Lodge Resort and Golf Club in Carmel, for example, plan to close the hotel Nov. 16.

"I have never seen so many lenders contemplating mothballing properties," said Jim Butler, a hotel lawyer and chairman of the global hospitality group for Jeffer, Mangels, Butler & Marmaro.

"It can and it will get worse for the hotel industry." The problem is not unique to California, but the effect is being felt especially hard here because of tourism's importance to the state. In Southern California alone, there were at least 140 hotels in default or foreclosure in September, including 55 hotels in the Inland Empire, 33 in Los Angeles County and 30 in San Diego County, according to the report by Atlas Hospitality Group. Statewide, 260 hotels were in default on their loans and 47 had been taken over by their lenders in foreclosure, the Atlas report said.

The problem is not unique to California, but the effect is being felt especially hard here because of tourism's importance to the state. The banks and insurance companies are now in the hotel business because in the past decade they helped finance a building frenzy that six of every ten hotels in the U.S. aren't able to make a penny in profit, says Bjorn Hanson, an industry expert with the Coopers & Lybrand accounting firm. As losses mount, so do loan defaults, which have forced lenders to foreclose on a record number of ailing properties. More than 3,000 have reverted to lenders in the past three years, and experts expect an additional 7,000 to be repossessed in the next 24 months.

What does a lender do with a foreclosed hotel? With luck he sells it fast and gets his money back; banks and S&Ls have no desire to run these properties. But buyers are hard to find nowadays. "The market to purchase hotels is dead," says Morris Lasky chief executive of Lodging Unlimited, a firm based in West Chester, Pa., that specializes in turning around problem hotels. "Banks are not going to lend to new buyers, and there isn't anybody with cash to buy these things." Among the many anxious sellers is the government's Resolution Trust Corporation, which has 160 hotels in its portfolio of failed S&Ls.

Some of the repossessed properties are landmarks. Bally has effectively agreed to hand over the keys to its Las Vegas and Reno resorts to a group of creditors. The Westin Canal Place in New Orleans was repossessed by Travelers. The Four Seasons hotel in Austin has been foreclosed by Manufacturers Hanover. The Los Angeles Airport Hilton is in the hands of Security Pacific National Bank. "It is unprecedented what has been going on with hotel foreclosures," says David Renton, who heads a hotel investment firm in Stamford, Conn. "This is the worst crisis for the industry since the Great Depression."

Most bank executives realize that hotel management is a job for a professional, and they usually hire new managers to try to revive an ailing property. Says Lasky, who has resuscitated 200 hotels during his 35-year career: "Three years ago, we were getting four or five calls a month from lenders of problem hotels. We're now averaging that many a day." While professional managers can keep operations on track, every hotel faces decisions that only the owner can make. Does a small roadside hotel really need a Nautilus room? Is it practical to have nightly bed turndowns or a 24- hour doorman?



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