MANY LUXURY HOTELS FACE DEFAULT

       Luxury hotel owners risk defaulting on their debt as the recession cuts occupanies and the credit crunch constrains refinancing.
       Loans secured by more than 1,500 hotels with a total outstanding balance of US$24.5 billion (Bt822 billion) may be in danger of default, according to Realpoint, a credit rating compay that tracks commercial mortgage-backed securities.
       Some of the biggest loans, put on the company's watch list because of late payments, decreasing occupancies or cash flow, were made to luxury properties where rooms can cost more than $850 a night.
       "All segments are showing signs of distress but the luxury segments carried much higher loan balances and is more clearly affected," Frank Innaurato, managing director of CMBS analytical services at Horsham, Pennsylvania-based Realpoint, said in an interview.
       Loging owners are struggling after adding rooms and properties at the peak of the CMBS market from 2004 to 2007, when $83.4 billion in hotel-backed securities was issued.
       Occupancy among chains with the costliest rooms fell to 60 per cent in the first half from 70 per cent a year earlier, according to Smith Travel Research. The decline was the industry's largest for that period.
       "Luxury hotels have been agressively financed during the peak CMBS issuance years," David Loeb, an analyst at Robert W.Baird, said. "That's why luxury hotel loans crowd these watch lists."
       A $90-million loan secured by the Four Seasons San Francisco, a 277-room, five-star property, is 90 days delinquent and foreclosure proceedings have begun, according to Realpoint. A notice of default has been filed.
       The borrower was Millennium Partners, a real estate firm founded in 1990 by Christopher Jeffries. The company controls 1,860 residential units, more than 2,000 hotel rooms and 93,000 square metres of office space.
       Nicola Blazier, a spokeswoman for Four Seasons San Francisco, did not respond to e-mails and phone calls for comment. Millennium principal Jeffries did not return a call.
       The Dream Hotel, a 220-room hotel on West 55th Street in New York City that features 300-thread count Egyptian bed linens and iPods, is collateral for a $100-million loan taken by Surrey Hotel Associates that's at risk of default, Realpoint said.
       The borrower is trying to restructure the debt and defer payments, said Riyaz Akhtar, vice president at Surrey.
       "What's happening to us right now is happening, and will continue to happen, to many hotel properties given the current market," Akhtar said in a telephone interview. The US hotel loan-delinquency rate may climb to 8.2 per cent by year-end, Morgan Stanley analysts led by Andy Day said in a June-23 report. That would match the peak from the last recession in 2001.
       Upscale hotels are suffering from "a heightened focus on prudent corporate travel expenditures", as well as the pullback in vacation travel, Day said.
       Microsoft, coping with its first annual sales decline, said in July it would slash $3 billion in operating expenses, including travel.
       The number of luxury-brand rooms in the US as of yhe end of July rose 9.1 per cent from a year earlier to 100,000, Loeb said.
       A $190-million loan secured by the 640-room Arizona Grand Resort is 90 days delinquent, according to Realpoint.
       If the loan is liquidated it may lead to a $111.9-million loss, the credit rating company said.
       The property's occupancy rate fell to 64 per cent as of December 2008 from 70 per cent a year earlier, Realpoint said.
       The borrowe was Points South Mountain Resort, a Grossman Company Properties affiliate, Pamela Kerner, a spokeswoman for Phoenix-based Grossman, declined to comment.
       Realpoint also is monitoring a $1-billion loan taken by CNL Hotels $ Resorts, a company acquired by a Morgan Stanley real estate fund.
       The loan is secured by five properties with 14 golf courses, including the Arizona Biltmore in Phoenix and the Grand Wailea Resort Hotel and Spa in Maui, Hawaii.
       Falling cash flow and weakening economic conditions put those properties on the watch list, Realpoint said. Revenue is sufficient to meet interest payments, and the assessed collateral value of $1.4 billion lowered the loan's risk, Realpoint said. Alyson Barnes, a Morgan Stanley spokeswoman, declined to comment on the analysis.
       Properties whose loans have been sent to a special servicer include Belfonti Capital-owned Westin Aruba Resort&Spa, which is collateral for a $230-million loan, according to Realpoint. The property is managed by Starwood Hoetels & Resorts Worldwide.
       The property's occupancy rate dropped to 41 per cent in May from an average of 63 per cent in 2008, the report said. Servicers are used when a loan is in or near default and needs to be reviewed or modified, according to Innaurato.
       The Westin Aruba has been hurt by competition from a 450-room luxury resort built next door, Realpoint said. Belfonti Capital in New York did not respond to a voicemail seeking comment.
       Another property on Realpoint's watch list is the Four Seasons New York, where a standard room with a king-sized bed starts at $855 a night. The hotel is among four used as collateral for a $344.6 million loan, Realpont said.
       The properties' occupancy rate fell to 57 per cent in the 12 months through June. At the end of 2007 and 2008 it was 73 per cent and 69 per cent, respectively, it said. Four Seasons New York's net cash flow " is well beloe historical trends", the credit rating company said, without being more specific.
       While the property's revenue per available room and net cash flow have jumped since bottoming in 2003, the hotel "is more recently showing signs of New York's weakening economy", Realpoint said.
       The property is owned by Ty Warner Hotels and Resorts.
       "We consider this loan a moderate default risk based on declining performance along with the lower expectation on the lodging-resort industry given the current economic conditions," it said.

       Occupancy among chains with the costliest rooms fell to 60% in the first half from 70% last year.
       A $90-million loan secured by Four Seasons San Franciso is 90 days delinqyent and foreclosure proceedings have begun.