Luxury hotels are defaulting on their loans as the economy kills off business travel. But what is ailing the hotel industry is good for consumers as room rates fall.
CNNMoney tells the story of 8 foreclosed luxury hotels in Foreclosure Inn.
Here are a few of my favorites. Please click on the link to see them all.
Location: Downtown San Diego
Labor Day Weekend rate $153
An early California satellite of the New York City-based chain that caters to affluent hipsters, the “W” quickly became a chic gathering spot. It’s just a few blocks from the harbor and near the Gaslight Quarter and it numerous clubs, bars and restaurants.
Default: The owner, Sunstone Hotel Investors, announced in June that it would default on a payment on its $65 million loan and would let the property be repossessed by its lender. Declines in both business and holiday travel cut into room rates and pushed down occupancy and the property is now worth less than its debt, according to Sunstone’s CFO. It continues to take in guests and operate normally.
Location: Orange County, Calif.
Labor Day Weekend rate: $478
If you want to feel like an upper management type on a corporate junket after the company has accepted a multimillion-dollar government bailout, try this ultra-luxury resort. After all, it’s where AIG spent $440,000 on a corporate retreat a week after the Federal Reserve gave the company an emergency $85 billion loan.
Default: The owners defaulted on their $70 million loan to CitiGroup and voluntarily transferred their interests to the bank this week, according to a spokeswoman for Starwood Hotels & Resorts, which runs the hotel. The spokeswoman said the default has not affected operations and it continues to be business as usual there.
Location: Maui, Hawaii
Labor Day Weekend rate: $299
This slice of the American Paradise forms part of a 23,000-acre pineapple plantation. There’s plenty to do here with two golf courses, a triple-tiered swimming pool and ocean beaches. There’s also great pampering in the 14,000-square-foot spa with 15 private rooms.
The hotel went through a recent renovation that left rooms with new marble baths, native Hawaiian paintings and other decorations and spacious lanais. There’s also a new fitness center with yoga and Pacific views.
Default: The majority owners, an investment group headed up by Goldman Sachs and Gencom, defaulted on a $260 million loan in April, but the Ritz-Carlton, a division of Marriot, continues to run the inn.
Location: Litchfield Park, Ariz.
Labor Day Weekend rate: $79
The Wigwam opened in 1929, and the grounds remain lovely, with meandering pathways and desert-scapes of saguaro and other cacti, palm trees and cottonwoods. The sunny Arizona weather enables guests to enjoy great golfing with 54 championship holes. There are also nine tennis courts, and two pools with water slides.
The resort lies in a northwestern suburb of Phoenix well away from the hustle of the city. But a glut of hotel rooms in the Phoenix area and a drop in pricing have hurt the Wigwam’s profits.
Default: The resort was set to be auctioned off in early July, but the action was postponed after the owners filed for bankruptcy. The case is now before a court and the parties may try to negotiate a settlement on the $65 million debt.
No Bids For Watergate Hotel
Inquiring minds and history buffs like are reading D.C.’s Watergate Hotel draws no bids at foreclosure auction
The Watergate Hotel, the iconic property synonymous with the downfall of President Richard Nixon, failed to attract any bids when it was auctioned Tuesday.
Joseph Cooper, who wielded the gavel, seemed surprised when there was silence after the auction opened at $25 million.
“It’s a Washington landmark,” said Cooper, the president of Alex Cooper Auctioneers, after calling the bid a few times.
“It’s a national landmark, really,” he told the crowd. The June 17, 1972, burglary of Democratic National Committee headquarters at the complex was at the center of the scandal that would lead to Nixon’s resignation two years later.
Big-name Washingtonians such as Justice Ruth Bader Ginsburg, former Senate leader Bob Dole and former Secretary of State Condoleezza Rice have been residents of the complex. So was Monica Lewinsky, the other woman in the Bill Clinton impeachment scandal, who lived with her mother next door to Dole.
In the end, New York-based PB Capital Corp., which had lent previous owner Monument Realty $40 million for the property, agreed to take the hotel for $25 million.
Hotel Foreclosures Soar In California
CoStar is reporting California Hotel Foreclosures Double in Last Three Months.
From Watch List reader, Alan X. Reay, founder and president of Atlas Hospitality Group in Irvine, CA, comes this astounding statistic. The number of California hotels in default or foreclosed on has jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default.
“Initially, the wave of distress in California was seen by the smaller, non-flagged hotels in secondary and tertiary markets,” Reay said. “As the hotel economy worsened, we have seen it impact all property types.The properties range from the luxurious St. Regis Monarch Beach Resort in Dana Point to the more economical Extended Stay and Red Roof Inn chains. No market or brand is immune in this downturn.”
“In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing,” Reay added. “Unfortunately, based on today’s market values, we estimate that none of these hotels have any equity remaining.”
Hotel hell is just beginning as consumers and corporations alike remain in belt-tightening mode, and no recovery in jobs is on the horizon.
Mike “Mish” Shedlock
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