Four Seasons Resort Maui at Wailea ownership of the real estate is separate from the management; MSD is the family investment vehicle for Texas computer billionaire Michael Dell.
Other
resorts also undergoing financial restructuring
By Harry Eager, Staff Writer
reprinted courtesy Maui News 3/27/10
The Four Seasons Resort Maui at Wailea provides some of the island’s most expensive accommodations for visitors. But the resort’s owner, MSD Capital L.P., has fallen behind in its mortgage payments and is working on a financial restructuring.
The owner of the Four Seasons Resort Maui at Wailea, who refinanced to take $145 million out of the property two years after buying it in 2004, is having trouble keeping up the payments.
A statement from MSD Capital L.P. in New York earlier this week said: "The ownership group is in discussions with the holders of the mortgage loans on the property. As soon as possible, we hope to achieve a financial restructuring that recognizes the challenges of the current operating environment and allows the property to continue to distinguish itself as one of the top resorts in the world."
On Thursday, Thomas Steinhauer, the general manager, said that MSD's actions will have no impact on the operations or staffing at the hotel.
"It is completely not affecting us," he said. "Business has been picking up in the first quarter, and we have had many days at full occupancy."
Nevertheless, Steinhauer was sensitive to the vibes that such financial news sends to customers. "It's not the best PR," he said.
MSD is the family investment vehicle for Texas computer billionaire Michael Dell. As is usually the case with big Hawaii resorts, the ownership of the real estate is separate from the management, and management on long-term contracts often continues through a string of owners.
When Dell picked up the Four Seasons for $280 million, it looked like a bargain. Wailea was benefiting even more than the rest of the state from a tourist boom that peaked in 2007. Room rates averaged $100 higher than the next most-expensive destination in the islands (Kohala), and the Four Seasons, often rated as the best hotel or one of the top two or three in the state, was charging rates well above the Wailea average.
Average rates topped out at more than $700 a day, although exact comparisons are not easy, because the Four Seasons "does not nickel-and-dime" guests with a lot of extra charges, Steinhauer said.
In any event, in 2006, when interest rates were very low, MSD took out two mortgages totaling $425 million.
The figures are from Realpoint LLC, a Chicago investment analysis firm that sells its reports. After a report was released Monday, it was quickly picked up by the world's financial press.
The Wall Street Journal, citing Realpoint, said that Four Seasons' net cash flow dropped from $32.9 million in 2007 to $10.9 million in the first three quarters of 2009.
MSD provided money to cover the shortfall, since the hotel needs $23.6 million just to pay the interest.
Last month, MSD declined to advance more cash to cover the notes, apparently in a bid to get the creditors to rewrite the terms of the loan.
Steinhauer said that he does not believe this maneuvering will lead to a foreclosure.
Many, perhaps most, Hawaii resorts are restructuring, one way or the other. The Ritz-Carlton, Kapalua is many months overdue on a $300 million note.
It and its lenders have not said much about it, but even though it is in default, there has been no move to foreclose.
The Ritz's situation is more transparent than most because Maui Land & Pineapple, a publicly traded company, is a minority owner and has to note the status of its interest in reports to the Securities and Exchange Commission.
Many other resorts are owned by private companies and do not have to reveal whether they are current on their debt.
But from Kapalua to Makena, few resorts are thought to be in good standing. The Makena Resort, including what was until foreclosure the Maui Prince Hotel, will be auctioned in Wailuku on Monday.
With very few exceptions, owners loaded up on cheap debt in 2006 and got caught short when worldwide economic conditions turned unfavorable starting toward the end of 2007. By September 2008, financial giants were crashing, and in the meantime, in Hawaii, the failure of ATA and Aloha Airlines and other factors had thrown Hawaii's visitor industry into reverse.
On Maui, occupancy rates on average dipped below 60 percent - ruinous given the high expenses of Hawaii resorts compared with Mainland hotels - and even those levels were maintained only by discounting.
Steinhauer said recently that his resort has been enjoying 70 and 80 percent occupancies, which are well above Maui's averages as reported by Hospitality Advisors.
In January, the most recent report, Maui's overall average was 67.5 percent - a big improvement over the 59.8 percent in January 2009. Wailea's occupancy rate was 67.2 percent in January.
Steinhauer said some of the money gained by the 2006 refinancing went back into the property, such as a $9 million serenity pool opened last year.
And he said that at no point during the downturn has he had to lay off workers.
* Harry Eagar can be reached at heagar@mauinews.com.
reprinted courtesy Maui News 3/27/10, original link www mauinews.com/page/content.detail/id/529936.html
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