Bank left holding high-profile property after auction failure
Thomas Holdings lost Sunset Whitney Country Club in foreclosure
Sacramento Business Journal - by Mark Anderson Staff writer
First Banks Inc. of St. Louis is marketing the Stockton Waterfront Hotel for $18.8 million. It cost $60 million to build, and was offered at auction last month for $12 million, but there were no takers. Buyers are scarce, even for distressed commercial properties put on the auction block for a fraction of their former value.
Thomas Holdings lost Sunset Whitney Country Club in foreclosure
Sacramento Business Journal - by Mark Anderson Staff writer
First Banks Inc. of St. Louis is marketing the Stockton Waterfront Hotel for $18.8 million. It cost $60 million to build, and was offered at auction last month for $12 million, but there were no takers. Buyers are scarce, even for distressed commercial properties put on the auction block for a fraction of their former value.
The Stockton Waterfront Hotel failed to attract bidders when offered at auction last month for $12 million. The hotel, which cost more than $60 million to build, is now being marketed for $18.8 million by First Banks Inc. of St. Louis, which owns the hotel free and clear.
The same bank tried to auction Sunset Whitney Country Club on Aug. 27 for a minimum bid of $2.8 million. But no one bid on the Rocklin golf course, which, like the Stockton hotel, had been owned by Sacramento’s Thomas Holdings LLC.
The same bank tried to auction Sunset Whitney Country Club on Aug. 27 for a minimum bid of $2.8 million. But no one bid on the Rocklin golf course, which, like the Stockton hotel, had been owned by Sacramento’s Thomas Holdings LLC.
The two properties are some of the first high-profile, real estate-related businesses to go through commercial foreclosure, bankruptcy filings and auction sales.
They will not be the last, said Dan Hayward, a hotel broker and financier with PKF Capital in Sacramento.
They will not be the last, said Dan Hayward, a hotel broker and financier with PKF Capital in Sacramento.
“There are a lot of properties that we are watching,” he said. “The fourth quarter is going to be a lot worse.”
And different. Every foreclosure has different players, a different structure and different location, Hayward said. “There are so many different directions properties can go when they start going down this path,” he added.
But different paths aside, both the Stockton and Rocklin properties show that commercial real estate is not selling, even when offered for less than half what it fetched just four years ago at the height of the boom.
Erasing debt and clearing title
Despite the sluggish response, there are many advantages to putting properties on the auction block. At the top of the list: clearing title to the property, getting rid of creditors who may be owed millions of dollars and scrubbing potential liens.
The Stockton hotel was about $40 million in debt before it hit the San Joaquin County courthouse steps last month. Now, following the auction proceedings, the hotel’s deed is uncontested, and First Banks doesn’t need to worry about any liens being placed on its title.
Sunset Whitney Country Club owed the bank $4.6 million. In addition, a former owner of the course was owed about $1 million in a second position, while Thomas and other creditors had unsecured claims of $1.5 million.
In many cases, the foreclosure auction wipes out all creditors other than the senior creditor,
unless another creditor is willing to buy the property.
If a lender has the senior position on the deed, and no one bids over the lender, the lender gets a clear title position on the deed, and all junior debt is wiped out, said Doug Kraft, principal in Kraft Opich LLP in Citrus Heights. As an attorney specializing in distressed loan and property cases, Kraft was talking in general and not about the specific properties.
Some prospects in sight
Sunset Whitney has remained open, with an interim management company taking over and hiring existing employees, said Mike Heutter, general manager of the club.
The Stockton hotel was closed the night before the auction. The plan is to reopen the hotel this month, said Alan Reay, president of Atlas Hospitality Group, the Irvine-based brokerage that is listing the hotel for First Banks. Reay said Atlas has received interest from numerous hotel brands.
The hotel was developed with the city of Stockton by Sacramento developer Regent Hotel LLC, an affiliate of Thomas Holdings. Thomas worked for years on the hotel, investing time and money that has been wiped out by the hotel’s foreclosure.
Thomas didn’t return calls seeking comment.
“As the temporary owner of both properties, First Bank continues to stabilize operations while making sure all the financial details involving both entities are in complete order. The Sunset Whitney Country Club will remain open with no interruptions in service until a new owner is found. A ‘soft’ opening, with limited services, of the Lexington Hotel is tentatively scheduled for Sept. 22 as we continue to look at potential buyers,” said Peggy Lents, First Bank spokeswoman.
The real estate listing for the Waterfront Hotel describes it as “being offered at a fraction of its replacement cost.” It cost more than $60 million to open the hotel less than two years ago.
The hotel is listed as “unencumbered by brand or management.” That can be a selling point, Hayward said, noting that it can be expensive for buyers to deal with an existing management contract or long-term brand affiliation, especially if it isn’t the management or brand a buyer wants going forward. Some major hotel brand contracts run a decade or two, and if a buyer wants another brand, that could entail breaching an existing contract and paying liquidated damages to change brands.
The real estate listing for the Waterfront Hotel describes it as “being offered at a fraction of its replacement cost.” It cost more than $60 million to open the hotel less than two years ago.
The hotel is listed as “unencumbered by brand or management.” That can be a selling point, Hayward said, noting that it can be expensive for buyers to deal with an existing management contract or long-term brand affiliation, especially if it isn’t the management or brand a buyer wants going forward. Some major hotel brand contracts run a decade or two, and if a buyer wants another brand, that could entail breaching an existing contract and paying liquidated damages to change brands.
Hotel values are all over the board, Hayward said. The market is in such a slump that the usual metrics of average rate and occupancy are pointing to basement-level pricing. Some bargain-hunters are shopping based on capitalization rates they want; others are shopping on a per-room cost. Nothing is close to replacement value.
The Waterfront Hotel opened as a Sheraton in December 2007 at a cost of $61.5 million. But three stories of penthouse condominiums on top of the hotel were never completed. The revenue from selling the condos was supposed to subsidize the cost of the hotel. But by the time the condos were almost ready to hit the market, the housing market was floundering. The project started falling into technical default early on, and it got hit with waves of mechanics’ liens. Regent sued the bank for not releasing the last $6 million of its construction loan. Meanwhile,
Regent got hit with about $9 million in mechanics’ liens.
First Bank foreclosed on the Stockton Sheraton in July 2008. A court-appointed receiver was named custodian of the property for First Bank. The hotel was still being operated by Regent, but had to drop its Sheraton brand after foreclosure. Regent continued to operate the hotel under the Lexington brand until the property was auctioned last month.
