Owner unable to service debt
The Westin Casuarina Resort &
Spa is facing foreclosure as the owner Columbia Sussex Corp is unable to cover
debt payments, ratings agency Realpoint LLC reported.
The 343-room Westin Casurina on
Seven Mile Beach was used by owners Columbia Sussex to back a $137.2 million
loan in 2007. In February of this year the loan was transferred to a special
servicer.
Until now, cash flow from the
hotel’s operations had managed to keep the loan current, but in October the
status of the loan was set to foreclosure, according to Realpoint.
While the hotel’s occupancy managed
to hold in the mid-50 per cent range over the past three years, the Westin more
recently had to drop rates to maintain occupancy rates, data compiled by
Realpoint showed. As a result the revenue per available room dropped to $184 in
2009, down from $258 in 2008 and $293 in 2007.
“The borrower advised that it was
no longer possible to cover debt service shortfalls and requested approval to
use funds in the curtailment account to cover debt service shortfalls; however,
the loan documents will not allow that request,” Realpoint said in its report.
According to the rating agency,
Columbia Sussex is in negotiations with lenders and seeks to modify the loan
terms.
The Westin Casuarina is operated by
Starwoods Hotels & Resorts Worldwide. Both the hotel’s General Manager Dan
Szydlowski and Columbia Sussex declined to comment on the matter.
Kentucky-based Columbia Sussex owns
66 hotels, including the brands Wyndham, Marriott, Sheraton and Westin, but is
laden with $2.4 billion of debt.
In June a $539 million loan backed
by 14 hotels in the US was transferred to a special servicer because of
imminent default, according to Fitch Ratings. This securitised mortgage is
connected to an additional $503 million of mezzanine debt that is subordinate
to the mortgage.
The company’s debt problems have
been further compounded by the cancellation on 22 October of a $375 million IPO
by Clearview Hotel Trust of Newport Beach. Clearview proposed to raise the
funds in order finance the acquisition of 14 Columbia Sussex hotels in a deal
worth $494 million. Columbia Sussex would have used these proceeds to reduce
its debt burden.
Another Columbia Sussex business,
the Tropicana casino in Atlantic City, went bankrupt last year and creditors
seized most of its assets.
The securitised debt backed by the
Westin Casuarina Hotel has been considered in danger of default for some time.
In 2009 Barclays Capital remittance data noted that the hotel did not generate
enough cash to service the debt and estimated a loss of 60 per cent on the
debt.
However, the Westin’s woes are
indicative of a general market trend dominated by lower demand. According to
Fitch Ratings the cumulative default rate for US fixed rate commercial mortgage
loans increased to 10.6 per cent at the end of the third quarter 2010 with
hotel properties being the largest contributor to defaults.
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