Wednesday, December 17, 2008

Downtown Hotel - Considerations

Dad, Here are two articles regarding the Renaissance, one from October 2008 and the other from 2006.



St. Louis Business Journal
October 27, 2008

HRI Properties, a lead investor of the Renaissance Grand and Suites Hotel next to the convention center downtown, said Monday it won???t make the next debt service payment of $3.5 million that is due on Dec. 15.
HRI said due to disappointing operating results for the hotel during 2008, it is not expected to meet projections and revenue is expected to deteriorate further next year amid a ???rapidly declining economic
environment,??? according to a letter from HRI to the city???s Industrial Development Authority. HRI said the hotel is $1.2 million short in its fund to repay the debt.
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"While we are extremely disappointed with these events, HRI is committed to working cooperatively with the Series A bondholders to formulate a plan that results in the best outcome for the project," HRI President and COO Tom Leonhard wrote in the letter to bondholders dated Oct. 27.
The $277 million convention center hotel located downtown in the 800 block of Washington Avenue was built by HRI in 2003. The Renaissance's bondholder debt totals $98 million. Interest payments on the hotel are $3.5 million twice yearly, in June and December.
It's not the first time the hotel has faced a shortfall in meeting debt obligations. Housing Horizons, a subsidiary of Kimberly-Clark, is the lead investor on the hotel and is in negotiations with HRI to transfer its ownership stake in the hotel to HRI. Kimberly-Clark made a $2.2 million payment in June to make up for a revenue gap at the hotel, and a $829,000 payment in December 2007.
Bondholders will meet Nov. 11 with representatives from HRI Properties and Marriott, the hotel's manager.
In addition to HRI and Housing Horizons, other financing for the project came from tax credits and loans backed by the city of St. Louis. In December 2007, a consultant estimated that the Renaissance won't generate enough cash to pay its debt payments on its own until 2012.


Second article

Bondholders and Owners of the Renaissance Grand St. Louis and the Renaissance
St. Louis Suites Make No Headway in Plan to Rescue the
Financially Embattled Hotels
By Tavia Evans, St. Louis Post-Dispatch
Knight Ridder/Tribune Business News
Jan. 4, 2006 - Bondholders and the owners of the Renaissance Grand St. Louis and the Renaissance St. Louis Suites have made little headway in reaching a plan to rescue the financially embattled hotels in downtown St. Louis.

Neither side could agree on a financial restructuring plan discussed during a Dec. 22 conference call. Steven Stogel, a St. Louis developer who is serving as an unpaid mediator for the parties, said during the conference call he hoped to have another proposal on the table within the next 60 days.

But it's clear the hotels have hit rock-bottom. A debt service reserve fund virtually has been depleted. The fund's balance has been whittled to $177,000 after hotel owners, led by Kimberly-Clark Corp., paid out a scheduled $3.5 million on Dec. 15 in bond interest payments.

And it's not clear whether the hotels will be able to make the next interest payment on June 15, according to a public notice of the Dec. 22 conference call.

But both sides are quiet about the status of proposals to save the hotels. An attorney representing the bondholders declined to comment. Stogel said he could no longer comment on the project.

A sluggish convention business has plagued the region's hotels in recent years. Competition from other mid-sized cities has increased, experts say, along with a glut of downtown hotel rooms in an already soft market.

The St. Louis Convention & Visitors Commission booked 410,000 group room-nights in 2004, according to a market report released last summer. That's about half the room-nights originally projected. The report suggests the Renaissance hotels have struggled as a result.

The Renaissance Grand had a 66 percent occupancy rate between June 18 and Sept. 19, at an average rate of $114 a night. The Renaissance St. Louis Suites did slightly better, with a 74 percent occupancy rate, at $115 a night.

The only clear-cut solution, in the short- and long-term, is to attract more business, said Richard Mersman, attorney for the owners. He said the hotels have increased their sales and marketing budget and staff in recent months to make more direct sales.

"When the hotels' underwriting was originally financed, it was based on the CVC's estimates, and we're running substantially less than those original projections," he said. "That has impacted the hotels' ability to generate sufficient income to pay their debt."

In earlier conference calls, selling the Renaissance Suites and converting it to condos was discussed.

Closing the hotels is not an option, said Jeff Rainford, Mayor Francis Slay's chief of staff. But he didn't rule out a condo-conversion or an ownership change.

Bond investors haven't been as upbeat. The properties' bond rating was downgraded in November to Caa2 from B3 by Moody's Investor Service and put on a watch list for another possible downgrade. The longest-term bonds, which mature in 2035, traded for 71 cents on the dollar Tuesday, down from 90 cents in September.

"Unlike most tax-exempt financing, this project was contingent on the successful financial operation of the hotel," Anne Van Praagh, an analyst for Moody's, said in a phone interview.

"The risk was clear to investors that the hotel had no track record and may not be able to make their occupancy forecasts. But that's the risks that investors took on."

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To see more of the St. Louis Post-Dispatch, or to subscribe to the newspaper, go to http://www.stltoday.com.


Copyright (c) 2006, St. Louis Post-Dispatch

Distributed by Knight Ridder/Tribune Business News. For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.



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3 comments:

Karrie E. Alms said...

Were GO Bonds approved rather than revenue bonds? If so, should the hotel fail, then the taxpayer would be left holding the bag with no collateral of the hotel --- correct? If yes, then the bondholders would be able to make claim on the hotel for possible bond repayment while the taxpayer continues to pay the interest --- correct?

Or there really isn't any worry for the developer, because should the projections fall short, the developer would still own the hotel and the taxpayers would just be left to pay the GO debt--- correct?

Anonymous said...

What are the results from the 12/15/2008 bondholders meeting?

Reserve Fund Study said...

Very interesting