The seizure of the St. Regis Monarch Beach, where American International Group Inc. sponsored a luxury retreat just days after accepting a federal bailout, is the most dramatic sign yet of the deep troubles in the market for high-end hotels.
Citigroup Inc. took over the Dana Point hotel and golf course Monday after months of negotiations over a $70-million loan that was in default. A foreclosure auction slated for today was canceled after the lender realized there would be no serious bids for the property, according to a knowledgeable person who was not authorized to discuss the situation publicly and spoke on condition of anonymity.
The takeover comes at a time of severe contraction in the hospitality industry.
Resorts such as the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, are experiencing some of the steepest declines in revenue as the recession hammers demand for business and leisure travel.
As twilight fell one night last week, a single person lounged by the resort's main pool while only a few couples sat in the restaurants and a piano player performed for an empty lounge. A person knowledgeable about the resort and the negotiations with Citigroup said that only about 15% of the hotel's rooms had been rented this summer.
Such low occupancy made it impossible for the resort to meet its all its debt obligations, which included payments on a $230-million first mortgage and the $70-million loan held by Citigroup, analysts said. With property values down in the recession, the resort complex was probably not worth much more than $100 million, said Alan Reay, a consultant with Atlas Hospitality Group.
The hotel's place in an infamous recession-related scandal has made its problems worse, investment banker Donald Wise of Johnson Capital said.
The taint arrived by association with AIG, the giant New York insurer that, because of massive wrong-way bets on the mortgage markets, became the largest recipient of bailout money from the federal government.
Just weeks after receiving its first $85 billion in federal funds, AIG shelled out more than $440,000 at the St. Regis for rooms, wining and dining, spa treatments and rounds of golf to reward 100 top salespeople.
"The property has already been nearly catastrophically damaged, through no fault of its own or the previous ownership, by the unwanted media exposure going back to when AIG held their conference," Wise said. "It's a wonderful asset in nearly catastrophic straits."
