HYATT in TROUBLE - $5 mil Assist Fails to Stave Off Delinquency

[stjr]

Folks, you read it hear first.  The HYATT is in big trouble it appears.  It's a BIG story being ignored by the local media but making the Wall Street Journal.  (Actually, you read it here last November when I posted the first article posted below this one.  But, no one jumped on that one.)  I guess this is what happens when the City pushes for one-shot wonders (this was built for the sole purpose of getting the Super Bowl with free riverfront land from the City).

If the Hyatt goes under, I don't think that would do much to further that Riverfront Convention Center.  Then again, some may say we need it more urgently than ever so we can salvage the Hyatt.  This could get really interesting.

  * SEPTEMBER 1, 2010
Help for Hyatt Isn't Enough
Jacksonville Hotel Misses Payment on Mortgage Despite $5 Million Assist

The helping hand Hyatt Hotels  Corp. extended last year to the owners of the Hyatt Regency Jacksonville in Florida ultimately wasn't enough to keep the hotel from again missing payments on its mortgage.

Last year, Hyatt agreed to cover as much as $5 million in payments on the hotel's $150 million securitized mortgage whenever an ownership group led by Chartres Lodging Group LLC couldn't. The deal helped make the mortgage current, and Chartres in return extended Hyatt's contract to manage the 966-room hotel.

However, the $5 million reserve Hyatt provided was exhausted by July, and the mortgage has been delinquent since then, according to credit-rating company Realpoint LLC. Chartres contacted the servicer overseeing the mortgage in April to discuss restructuring the loan, Realpoint reported.

A Chartres representative said the company is "currently engaged in discussions with the lender" but declined to comment further. Chartres owns the Hyatt Regency in partnership with Marathon Real Estate Opportunity Fund LLC and Square Mile Partners II LP.

The hotel's occupancy declined to 52% last year from 61% in 2008, according to Realpoint. Its net cash flow declined to nearly $4.2 million last year from $10.9 million in 2008.

http://online.wsj.com/article/SB10001424052748704421104575463970323876954.html?mod=googlenews_wsj

My post from last November:

Here is a recent example of one of those City of Jax projects that doesn't stand the test of time.  An oversized ugly box hotel built so we could get the SuperBowl.  I guess no one figured what would happen for the next 50 years after that.  That would take vision.

As I recall, somewhere I read the Hyatt/Adams Mark is having these problems even after getting some $22 million in incentives/free land from the City.  And, the Hyatt people got a deal on it when the Adams Mark management was forced to unload the hotel after not doing well.

NOVEMBER 25, 2009

Helping Hand by Hyatt Hotels
A Delinquent Mortgage Is Made Current Again at a Jacksonville Property

Amid the commotion of hotel owners and hotel operators fighting about cutting costs in this downturn, there are occasions in which operators pull out all the stops to make sure that owners don't go under.

Case in point: Hyatt Hotels Corp. this month helped the owner of the 966-room Hyatt Regency Jacksonville in Florida avoid default on its $150 million securitized mortgage.

The hotel, owned by Chartres Lodging Group LLC, had gone delinquent on its mortgage last month, according to debt-rating company Realpoint LLC. The hotel's occupancy and average rate, which registered 56% and $119, respectively, at the end of June, have suffered amid the downturn and a sharp drop in corporate meetings, Realpoint says.

In stepped Hyatt, which agreed to cover as much as $5 million in payments on the mortgage in the event Chartres couldn't. Hyatt also pledged to cut its management fee in exchange for an extension of the pact's term and to pay up to $1 million in future costs for furniture, fixtures and equipment. Hyatt declined to comment. But the benefits for Hyatt likely are the extension of its management contract and avoiding disruption.

After Hyatt's contributions, the hotel's mortgage was again classified this month as current. "The loan and the property are in good standing," says Chartres president and co-founder Robert D. Kline.
â€"Kris Hudson

http://online.wsj.com/article/SB10001424052748703819904574556191464816208.html

[Overstreet]

HBE a design build construction firm and hotel owner built the Adams Mark 2000 to 2001. HBE began to redefine themselves as a Hospital and Equipment Design build company and began selling off all the Adams Marks in 2003. The Jacksonville hotel might not have been doing well, but HBE was selling them anyway. Chartres bought the hotel in 2005 and converted it to a Hyatt. 

My late wife's co-worker's husband was on the construction team. He took me for a tour of the building before it opened.  It reminded me never let a young guy take an old guy on a fast tour of a big building under construction.  Way too many stairs.

[aj_fresh]

I got married at the Hyatt. Had about 50 out of town guests and they all loved the location (on the river) and easy access to the night life.

[videojon]

Hope this doesn't negatively affect the research for the proposed "Bank Hotel"

[thelakelander]

Regarding the convention center talk, this backs up what i've been saying all long. Any site that requires the construction of another convention center sized hotel doesn't make much sense. We already have one oversized subsidized hotel in a market that can't support it.  It's better to work with your existing complementing uses instead of building in a location that also requires you to subsidize more to compete with existing businesses you already subsidize.

[thelakelander]

Hope this doesn't negatively affect the research for the proposed "Bank Hotel"

I don't think it matters. They are two completely different sizes and cater to different markets.

[tpot]

I don't know about that.  I would consider the Hyatt one of the nicer hotels that downtown JAX has to offer.  The hotels on the S Bank are even worse.  If this city can't even support a nice Hyatt how can it support something like The Bank that isn't even on the water.......and will more than likely demand even higher prices............It's not like downtown JAX is a destinantion outside of FL/GA weekend....

[stjr]

The Hyatt is one of the biggest hotels in Florida, room-wise, especially if you don't count the Disney property hotels and a small handful just outside their gates.  It is simply way oversized for the everyday needs of Jax.  Like I said, they needed this monstrosity for the Super Bowl and that's what dictated its size.  Not market conditions.  The economics were wildly distorted by the tens of millions in land and incentives thrown at developers by the City.

If we started tomorrow, I don't see a new convention center for at least 3 to 5 years.  Likely, far longer.  That isn't going to solve the Hyatt's problems now.

I think, if they go up for sale, someone comes in and redevelops the building.  they cut the hotel by at least half and convert the balance to condos, apartments, or offices.  If they can do it with the legendary Plaza Hotel in New York, they won't have any trouble doing it with the Hyatt Box.

Now, once the Hyatt is shrunk substantially to maybe a mere pittance of what it is now, can we justify it dictating to locate the convention center next to it?  Maybe not.  Siting the CC becomes a whole new ball game.

[chipwich]

Chartres owns some pretty high profile hotels in the US and Japan.  I doubt they will let this asset go under.  I  imagine since the recession has weaned, hotel traffic (and conventions) should pick up enough for the hotel to stay profitable.

A 966 room in Jacksonville must be very tough to keep full.  

[stjr]

Chartres owns some pretty high profile hotels in the US and Japan.  I doubt they will let this asset go under.  

Chip, no one wants to lose a property.  But unlike, say a governmental entity running, hmmm....  a major money eating monorail ( ), in the private sector, return on investment rules and at some point, RATIONAL investors cut their losses.  If Chartres wasn't in dire straights and/or near the end of the line, at least with respect to this property, (a) they should not have required the apparently most unusual (I suppose that's part of why the WSJ is writing of it) step of Hyatt Corp. having to help them pay the mortgage and then (b) still going into delinquency and subjecting the property and themselves to this less than favorable publicity.

Most holding companies insulate themselves from individual operations like this through separate subsidiary corporations.  If the parent company forgoes adding more capital to the subsidiary and can't renegotiate significantly more favorable terms with their lenders, they write off their investment, let the subsidiary die on the vine or dump it for a fire sale price, and just walk away from it.  Since the building's mortgage may be greater than its value, foreclosure may be the only outcome.  The lender takes over and figures out what to do next.

[thelakelander]

Now, once the Hyatt is shrunk substantially to maybe a mere pittance of what it is now, can we justify it dictating to locate the convention center next to it?  Maybe not.  Siting the CC becomes a whole new ball game.

Chop it down to 500 rooms or so and you're fine.  Cut it down to 100 and the game could change, although you still have the Landing and East Bay that make the site a pretty attractive centralized location for a CC.  In any event, it would not be in the city's best interest to subsidize another large scale hotel at another DT location 3-5 years down the road.

[Ocklawaha]

Chartres owns some pretty high profile hotels in the US and Japan.  I doubt they will let this asset go under.  

Chip, no one want to lose a property.  But unlike, say a governmental entity running, hmmm....  a major money eating monorail ( ), in the private sector, return on investment rules and at some point, RATIONAL investors cut their losses.

Oh now I get it STJR, you want them to tear it down! Cut and run eh? Travelers to Jacksonville are more of a Motel 6 demographic anyway. The Hyatt is WAY too tall, people just won't go upstairs to their rooms when they can stay at street level.  YEP! Wrecking ball time!


OCKLAWAHA

[simms3]

^^^Japanese money.  These guys are still players I guess.  That hotel seems to be burning through cash really really quickly, and obviously has not had stable or economically sustainable occupancy for a longggg time.  I think everyone is hitting the nail on the head here by pointing out that the clock is ticking for anything to be done.  I agree anything short of at least a commitment to selecting the adjacent parking lot and land underneath the current county courthouse as the site for a new convention center will not be enough to keep Hyatt or Chartres happy enough (I don't know the financing of the hotel beyond what was said of the cash infusion, but nothing sounds good for any parties (the city's not getting a good bed tax income, Chartres is probably losing money on the property, the Hyatt is losing money on the property potentially by having to keep Chartres afloat and what are the terms of the naming contract?  Hyatt gets to be the flag for $5 mil for how much longer?).

Did a quick glance of the property on Realquest and man did I notice a heck of a lot of bank owned condos, pre-forclosure condos, and condos at auction or short saled in San Marco Place, Ashley building (the affordable house adaptive re-use project), and in Berkman.  Strand, which I guess is rentals, and Peninsula, and Carling, and 11 East all seem to be void of that kind of activity.  Same with Metropolitan (are those rentals?) and the Parks at Cathedral Place owners were holding their own.  I also noticed that the Radisson Riverwalk was in pre-foreclosure (probably old news to you guys, but any word?).

[stjr]

Chartres owns some pretty high profile hotels in the US and Japan.  I doubt they will let this asset go under. 

Chip, no one want to lose a property.  But unlike, say a governmental entity running, hmmm....  a major money eating monorail ( ), in the private sector, return on investment rules and at some point, RATIONAL investors cut their losses.

Oh now I get it STJR, you want them to tear it down! Cut and run eh? Travelers to Jacksonville are more of a Motel 6 demographic anyway. The Hyatt is WAY too tall, people just won't go upstairs to their rooms when they can stay at street level.  YEP! Wrecking ball time!


OCKLAWAHA

Ock, no need to tear the Hyatt down, it can be "re-used".  It's alright by me to do the same with the Skyway as long as it doesn't continue to drain the taxpayers pockets with little in return.  Any ideas for the Skyway's "reuse"? 

[simms3]

Chop it down to 500 rooms or so and you're fine.  Cut it down to 100 and the game could change, although you still have the Landing and East Bay that make the site a pretty attractive centralized location for a CC.  In any event, it would not be in the city's best interest to subsidize another large scale hotel at another DT location 3-5 years down the road.

Whatever notes they have pulled on the property won't go away by reducing the amount of rooms.  Sure their variable operating costs might shrink, but they probably have some pretty serious debt unless they paid cash (highly doubtful in 2005 when they acquired).