Morgan Stanley real estate fund financed 8 choicest properties, including Grand Wailea Hotel, were put into an REIT
reprinted courtesy Maui News 2/1/11
by Harry Eager, Staff Writer
Creditors are supposed to restructure the debts of the real estate investment
trust that owned the Grand Wailea Resort today. Otherwise, senior creditors
could exercise their rights to foreclose on a billion-dollar mortgage on the
big resort and four other famous hotels.
The changes, following a foreclosure auction last week, will not have any immediate impact on the Grand Wailea, which is operated under a long management contract with Hilton.
Bloomberg News reported that lenders must present a restructuring by today to protect the interests they won in the auction.
In 2007, a Morgan Stanley real estate fund financed the takeover of CNL Hotels & Resorts. The eight choicest properties, including the Grand Wailea, were put into an REIT, and lesser properties were spun off to a Texas company.
The eight elite properties were used as collateral for a package of loans totaling more than $2.5 billion.
There were, in addition, $800 million in corporate bonds. One of the loans defaulted to Paulson & Co., Winthrop Realty Trust and Capital Trust Inc., who claimed the properties at the auction.
However, there is other, senior debt, and to protect their equity interest, they must restructure the remaining debt, Bloomberg reported.
None of this has any effect on day-to-day operations, according to Grand Wailea Managing Director Matt Bailey. Nor have the debt problems of Morgan Stanley's free-standing REIT interfered with plans for a $250 million expansion of the Grand Wailea that would make it Maui's first thousand-room resort.
Bailey said he understood there are about 70 lenders involved, and that makes the negotiations for a restructuring complex.
Bloomberg reported that a $1 billion mortgage that is backed by six resorts including the Grand Wailea could be foreclosed on unless the Paulson group arranges an extension and restructuring. Paulson and its allies probably will have to inject more capital into the package to get an agreement, Bloomberg reported.
The six properties standing as collateral for the loan are the Grand Wailea; La Quinta Resort and Club and PGA West; the JW Marriott Desert Ridge Resort and Arizona Biltmore Resort and Spa; the Doral Golf Resort and Spa in Miami; the JW Marriott Grande Lakes and Ritz-Carlton Grande Lakes in Orlando, Fla.; and the Claremont Resort & Spa in Berkeley, Calif.
Bloomberg cited Realpoint LLC, a credit rating company, as saying "none of the properties is performing above original underwriting."
That is, they are not earning enough to cover their debts. However, they are considered to have long-term potential, and thus the incentive to restructure and lengthen the repayments, calculating that these "iconic" resorts will eventually become profitable.
As part of the maneuvering to be in a position to bid for control, the Paulson group last month restructured $600 million in debt, converting $200 million to equity and extinguishing the rest.
That simplified the complex structure, putting this junior group in a position to bargain with other lenders. Paulson declined to comment to reporters about its strategy.
* Harry Eagar can be reached at heagar@mauinews.com.
reprinted courtesy Maui News 2/1/11, original link www mauinews.com/page/content.detail/id/545688/Grand-Wailea-owners-scramble-to-settle-debt.html?nav=10
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