Resort Developers
April 13, 2009 - Hotels in Bankruptcy, Nationwide
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More Hotels Facing an Uncertain Future Hotels have been struggling for months as businesses and individuals cut back on travel. But what was a bad situation is likely to turn worse as a rapidly growing number of hotels — including many high-end and luxury properties — are forced into bankruptcy or foreclosure in coming months. |
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Daufuskie Island Resort |
More Hotels Facing an Uncertain Future
Hotels have been struggling for months as businesses and individuals cut back on travel. But what was a bad situation is likely to turn worse as a rapidly growing number of hotels — including many high-end and luxury properties — are forced into bankruptcy or foreclosure in coming months. Jim Butler, a hotel industry lawyer, said those who manage distressed hotel loans have told him that their workloads have jumped tenfold in recent months. “Things seem to be accelerating,” Mr. Butler said, and predicted that before the recession is over, the number of hotels in bankruptcy or foreclosure could rise above the 2,000 or so reached in the industry’s last big downturn in the 1990s. The names on the front of the troubled hotels are well-known management companies like Ritz-Carlton and InterContinental. But the owners of the hotels are investment groups, wealthy individuals or companies that specialize in lodging and are generally little-known outside the industry. Many owners took out loans to finance new construction or renovations when hotel occupancy rates were up and credit was readily available — just the opposite of the situation now, as those short-term loans are coming due. But it is the management companies that risk damage to their reputations since theirs are the featured names. Guests, too, can be affected if a hotel is financially troubled. Even at high-end properties, in-room electronics and linens may be older or show more wear, and items like coffee or fresh flowers in the lobby may be eliminated. “Hotels are doing things like closing the restaurant two nights a week or having the nightclub only open one or two nights a week,” said Molly Vincent, vice president of a destination and event management company in Las Vegas. In some cases, guests may not even notice what they are lacking. If a hotel stops a project to add flat-screen TVs halfway through installation, for example, a traveler is not likely to know that. Sometimes, quite literally, travelers can be left out in the cold. Steve Collins, president of a meeting site selection firm, had booked a 30-person leadership retreat at the Daufuskie Island Resort & Spa in South Carolina last November. When his group arrived, unaware of any financial problems faced by the hotel, they found that their reservations for a group of high-end, private condos had been replaced with standard room bookings. “At that point, there was no option to cancel or move,” Mr. Collins said. His group stayed, but suffered poor housekeeping and food service, effects of the distressed property’s staff cutbacks. Two months later, in January, the hotel’s owners filed for bankruptcy and by March, the property was closed. Unfortunately, that experience may be repeated, industry experts say, as hotels, especially luxury ones whose numbers grew rapidly, fall behind on their debt payments. “Luxury is just getting killed,” said Bobby Bowers, senior vice president for operations at STR Global, a company that monitors and researches hotel performance. While occupancy and therefore room rates are down at every level of hotel, the drop is more pronounced at the higher end. Since these hotels have greater fixed operating costs because of their extra services and larger staffs, they need higher occupancy rates just to break even. This is compounded by what many analysts have called the “A.I.G. effect,” as companies worry about public or regulatory scrutiny if their employees stay at lavish properties or hold events there. Although the troubled economy has hit hotels across the country, some areas have it tougher than others. MGM Mirage and Harrah’s Entertainment own 19 casino hotels on the Las Vegas Strip. Harrah’s delayed construction on a hotel tower and has been able to refinance its debt over a longer period to reduce its payments. MGM recently sunk $200 million into CityCenter, a mixed-use project under construction, after its development partner skipped a payment. Other Las Vegas properties are struggling, too. The Ritz-Carlton, Lake Las Vegas spent much of 2008 in Chapter 11 and was bought last month by its third owner in just over a year. In Scottsdale, Ariz., two upscale properties entered foreclosure in January after being open for less than six months, and the historic Greenbrier Resort in West Virginia filed for Chapter 11 last month after losing $35 million in 2008. In Chicago, plans for a 200-room Shangri-La hotel were scrapped. Hotel managers embrace the phrase “business as usual” when talking about operating under the pall of bankruptcy or foreclosure. Unfortunately, even if travelers paid top dollar in expectation of fine dining, solicitous service and high-end amenities, they have little recourse if their stay does not live up to their expectations. Alexander Anolik, a lawyer and author of “Traveler’s Rights: Your Legal Guide to Fair Treatment and Full Value,” says guests can try bargaining down the room price, but there is no legal or industry standard for reimbursing travelers for curtailed or closed amenities. Original Story - New York Times Related Stories on Developer Implode Carefree Resort - Daufuskie Island Resort
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