Luxury Hotel Group Files for Bankruptcy

Five luxury hotels, located in both California and Hawaii that include The Grand Wailea Resort Hotel & Spa and The Club at PGA West, have filed for bankruptcy protection, as reported by San Francisco Gate, Bloomberg and other news media.

The hotels, and some golf courses, weren't saved from bankruptcy though recently acquired by lenders Paulsen and Company - that had gained control of them from Morgan Stanley real estate.

Paulsen and Co. purchased the resorts in a foreclosure auction this past January 28.  The junior debt that they held helped Morgan Stanley to purchase CNL Hotels & Resorts Inc. for $6.7 billion in 2007.

When Morgan Stanley defaulted, after the properties began to decline in value during the recession, they foreclosed.

Winthrop Realty Trust and Capital Trust Inc. then faced negotiations with trusts that oversee securitized mortgage on resorts. 

On January 31 a $1 billion mortgage, backed by five of the former CNL properties, matured with $500 million in additional debts.

Harris Trifon, a Deutsche Bank Securities Inc. analyst from New York, reported on January 30, "Over the last few weeks, holders of the mezzanine debt have battled for control of the five properties."

Trifon also said that secured-debt holders will be fully repaid, and the mortgage loan, once restructured, will most likely be extended two years.

More than $1 billion in both debts and assets were listed in a chapter 11 petition filed on January 31 in the U.S. Bankruptcy Court in Manhattan for MSR Resort Golf course LLC - also known as PGA West & Citrus Club.

MSR, the lead debtor for 30 units seeking bankruptcy, includes the owner of The Grand Wailea.  The hotel is on 40 acres of Wailea beachfront property and contains 780 guest rooms. 

Three more resorts in the filing - that jointly total another 3,300 guest rooms, over 300,000 square feet reserved for meetings, 22 retails stores and 14 golf courses - are Miami's Doral Gold Resort & Spa, Berkeley's Claremont Resort & Spa and Phoenix's Arizona Biltmore Resort & Spa.

Per court papers, at the end of November debt was listed at $1.9 billion and assets at $2.2 billion.  The total revenue for debtors was approximately $465 million for 2010.

A unit of PNC Financial Services Group, Midland Loan Services, is the special servicer for the recently matured loans.

Two hotels in the Grand Lakes of Orlando, Florida, The JW Marriott and the Ritz-Carlton, weren't included in the Capital Trust controlled bankruptcy.  Along with these two, Phoenix's JW Marriot Desert Ridge Resort, was also spared in the filing.  The maturity on their debts won't occur until May of 2010.  Paulson and Winthrop own stakes in all three units.

The largest brokerage in New York - and the world - Morgan Stanley, financed the entire CNL acquisitions with debts divided as follows: $1.5 billion in senior, $1 billion in mezzanine and $800 million in corporate.

MSR's bankruptcy was assigned to U.S. Bankruptcy Judge Sean H. Lane.  

Contact a bankruptcy attorney in our directory as soon as possible if you need to file a business or personal bankruptcy.