7/20/2009
By Roger Vincent and E. Scott Reckard 2:42 PM PDT, July 20, 2009 LA TIMES
The St. Regis Monarch Beach, the Orange County luxury resort where American International Group Inc. sponsored a luxury retreat just days after accepting a federal bailout, has been seized by Citigroup Inc.The hotel will continue to operate as a St. Regis."The acquisition will have no impact on the hotel, golf club or beach club," Citigroup said today. "Starwood's St. Regis brand will continue to be responsible for the day-to-day management of the properties."Citigroup's takeover is a sign of how deeply troubled the upscale lodging industry is now, said consultant Alan Reay of Atlas Hospitality Group. High-end hotels across the country have been hammered by a cutback in business and leisure travel.Resorts such as the St. Regis, which cater to wealthy travelers and the high-end corporate retreat business, have seen some of the steepest declines in revenue.
"It's not good for anyone when a hotel goes back to the bank," Reay said. He estimated that the hotel was carrying $300 million worth of debt but is probably not worth much more than $100 million now that property values have fallen in the recession.One of the loans -- $70 million from a real estate unit of Citigroup -- had gone into default, resulting in the takeover. Citigroup said it would sell the 8-year-old property at a foreclosure auction. But when no bidders emerged, the bank and the previous owners agreed to let Citigroup take ownership without that formal step.The hotel's place in an infamous recession scandal has been ruinous, investment banker Donald Wise said.The St. Regis became something of an emblem of corporate excess and greed last fall as the global financial system was threatening to melt down.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.The Makarechian development family of Newport Beach, which does business as Makar Properties, built the hotel and will continue to own adjacent land targeted for high-end residential development, a spokesman said."We are happy to say that Makar and Citi were able to reach an agreement that resulted in our continuing to own significant portions of the overall resort, while at the same time allowing for the public sale to be canceled," the family said in statement.
"It's not good for anyone when a hotel goes back to the bank," Reay said. He estimated that the hotel was carrying $300 million worth of debt but is probably not worth much more than $100 million now that property values have fallen in the recession.One of the loans -- $70 million from a real estate unit of Citigroup -- had gone into default, resulting in the takeover. Citigroup said it would sell the 8-year-old property at a foreclosure auction. But when no bidders emerged, the bank and the previous owners agreed to let Citigroup take ownership without that formal step.The hotel's place in an infamous recession scandal has been ruinous, investment banker Donald Wise said.The St. Regis became something of an emblem of corporate excess and greed last fall as the global financial system was threatening to melt down.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.The Makarechian development family of Newport Beach, which does business as Makar Properties, built the hotel and will continue to own adjacent land targeted for high-end residential development, a spokesman said."We are happy to say that Makar and Citi were able to reach an agreement that resulted in our continuing to own significant portions of the overall resort, while at the same time allowing for the public sale to be canceled," the family said in statement.
