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Schrager's Clift Hotel Files for Chapter 11 as San Francisco's Tourism Woes Continue

The move reflects broad financial trouble for the nightclub owner turned high-style innkeeper.

August 20, 2003|Roger Vincent | Times Staff Writer

New York hotelier Ian Schrager, whose high-design properties cater to affluent travelers, has filed for Chapter 11 bankruptcy protection for his plush Clift Hotel in San Francisco's theater district.

The historic 373-room Clift has been suffering along with the rest of the San Francisco hotel market. The Bay Area has seen a dramatic drop in tourism and business travel since the Sept. 11 terrorist attacks.

The filing Friday in federal Bankruptcy Court in New York is for only the Clift Hotel, which has debts totaling $57 million. But Schrager also has been scrambling to refinance $355 million worth of debt secured by four of his other hotels: the Mondrian in West Hollywood, the Delano in Miami Beach and the Royalton and the Morgans in New York.

Among Ian Schrager Hotels' other properties are the Miramar in Santa Barbara, which sits vacant after a renovation promised by Schrager stalled in 2000.

The Clift will continue to operate, according to Michael Sitrick, a Schrager spokesman, who said the hotel would be out of bankruptcy within four months.

Schrager's company has obtained loans to refinance the Clift's debt, Sitrick said, but had to seek bankruptcy protection because the debt was about to come due and not all the debt holders had signed off on the refinancing.

One of the founders of New York's legendary Studio 54 disco in the 1970s, Schrager turned to the hospitality industry in the 1990s with several elaborately designed hotels that drew a hip, well-heeled clientele, including celebrities from the entertainment and fashion industries. Visitors who weren't hotel guests often were turned away from on-site attractions, including the Sky Bar at the Mondrian.

Schrager's initial success spawned several imitators, and they all are now competing for a smaller pool of free-spending travelers, said hotel consultant Alan Reay, president of Costa Mesa-based Atlas Hospitality Group.

Lenders liked Schrager's boutique hotel concept during the boom years of the late 1990s, when the hotelier was eager to expand his empire, Reay said.

Now Schrager is saddled with "too much debt and not enough income," Reay said, as room rates fall at high-end hotels across the country.

The Clift's posted room rates range from about $325 to $425 a night, but discounts are available.

All told, Schrager has invested about $100 million in the Clift, including the $80 million he paid for the 88-year-old hotel in 1999, Reay said.

"In today's market, especially in San Francisco, that's going to be hard to recoup," he said.

"The era of people paying for a room to get access to a nightclub is over."

That said, Reay noted, Schrager has demonstrated his ability to make a comeback.

In the 1980s, Schrager served 13 months in prison after being convicted of evading taxes on income from Studio 54.

Today his company controls 10 hotels with more than 3,400 rooms in five cities.

"I wouldn't bet against him," Reay said. "He seems to be able to a pull rabbit out of his hat."

This month, Schrager said he had received a $16-million loan from Beverly Hills-based Canyon Capital Realty Advisors to pay off another loan secured by the Miramar and held by Santa Barbara Bank & Trust.

With the new financing, Schrager said in a statement, his company "can now devote its time and energy to the development of the property." The statement didn't say when construction on the Miramar would resume.

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