# (2010 thread) Park Hyatt Aviara in danger of going into default



## siesta (Sep 18, 2010)

Hadn't seen this posted on here, forgive me if its a duplicate.  Could this be why we see so many units being bulk deposited?

"In yet another sign of the troubled luxury hotel market, owners of the Park Hyatt Aviara resort in Carlsbad are close to defaulting on their $186 million loan, which has been moved into special servicing.

The possibility of a loan default comes just two months after Broadreach formally parted company with Four Seasons Hotels and Resorts following an acrimonious dispute in which *Four Seasons was accused of poorly managing the 329-room resort*. The very public dispute ultimately went into arbitration last year, and in April, a panel ruled that the two companies should terminate their dispute, concluding that both had “contributed to the demise of the business relationship.”

http://www.signonsandiego.com/news/2010/aug/27/loan-on-park-hyatt-aviara-in-danger-of-going-into/


----------



## Steve (Sep 18, 2010)

siesta said:


> Could this be why we see so many units being bulk deposited?



Not directly.  Hyatt and the hotel owners have nothing to do with the Residence Club.  Indeed, Four Seasons continues to manage the Residence Club, and therefore the problems at the hotel do not directly impact the Residence Club.   

However, it is possible that some owners may be choosing to deposit their weeks in II and exchange for other resorts as a result of the turmoil at the hotel.  They may have decided that this is a good time to try someplace else until things settle down.

While I have never spent much time at the hotel when staying at the Residence Club, some owners consider the hotel facilities to be an important part of their stay.  They may be worried about a disruption in service at the hotel, so they may be more inclined to exchange for now.  If the hotel were to be sold, it might actually be a good thing in the long run as the current owners have not managed their finances well.

Steve


----------



## alwysonvac (Sep 19, 2010)

siesta said:


> Could this be why we see so many units being bulk deposited?



No, the bulk sighting occurs ever year for the same time period (see below).

From the Sighting Board (NOTE: Must login as a TUG member to view)
2011 weeks - http://www.tugbbs.com/forums/showthread.php?t=130263
2010 weeks - http://www.tugbbs.com/forums/showthread.php?t=109014&highlight=aviara
2009 weeks - http://www.tugbbs.com/forums/showthread.php?t=81354&highlight=aviara
2008 weeks - http://www.tugbbs.com/forums/showthread.php?t=56706&highlight=aviara


----------



## chibuilder (Sep 19, 2010)

We returned from our annual trip to Aviara last month and noticed very little change (other than some signage within the property delineating what was Park Hyatt and what was Four Seasons Residence Club).  The Residence Club is still managed by Four Seasons at the high level of service that those of us who own at FSA expect.  Like Steve (above), we don't use the hotel services all that much as the Residence Club offers so many amenities that we consider better and more personable than the ones at the hotel.  We do tend to "stroll" the hotel a couple of times a week with the kids and do use the spa.  We didn't really notice much change at all.  Even seemed like most of the staff were kept.   

In my opinion this whole thing stems from a private equity fund buying the hotel at the height of the market and over-leveraging it with debt.  As a result, when the great recession hit, they couldn't service their debt.  They tried to get the very company that caused them to pay so much for the hotel in the first place -- Four Seasons -- to reduce service levels, reduce costs and effectively stop providing "Four Seasons services" rather than ponying up more cash to support their investment.  The hotel was always rated at the top because of the Four Seasons Management and the management contracts give (gave) Four Seasons that right (in fact obligation) to maintain the property at Four Seasons levels.  There are certain fixed costs necessary to do so and the new hotel owners wanted Four Seasons to lower the operating costs to help them afford their new luxury purchase.  

It would be like you or me purchasing a $400,000 Rolls Royce in 2007 and then complaining in 2009 when we can no longer afford the gasoline because our new Rolls only takes premium fuel and gets very low fuel economy.  Instead of either bucking up and supporting our luxury purchase, if we could no longer afford it, we would either sell it at a loss and chalk it up to making a bad investment at a bad time or we might struggle to make payments and eventually have it repossessed.  But we probably wouldn't demand that Rolls Royce fix our car to allow it to get 40mpg on regular unleaded fuel. We bought the Rolls because of its luxury and appointments and, in fact, wouldn't have bought it if it were a Camry but now the Camry is in vogue and the Rolls seems excessive.  Broadreach Capital bought the "Rolls Royce of hotels" and then when they couldn't affort to maintain their luxury purchase, wanted to change it to make it operate more like a Camry.  The problem was that the powertrain that makes the hotel run was contracted with a luxury and expensive powertrain company.  They knew that going in.  There were, of course, plenty of mid-range or lower range  hotels available for sale when they bought Aviara but they chose to buy Aviara....with its long-term management contract in place from Four Seasons.  The original dispute that led to Four Seasons getting replaced by Park Hyatt, predicted that the same owners might still have problems making their payments.  Sure enough, that is what appears to be happening.  Probably ultimately leads to another owner getting a bargain hotel deal.  

The property is a great place and I will close with what I opened with.  We were just there and had a tremendous time, love the Four Seasons Residence Club at Aviara, and have a tremendous time each time we go.  Service is spectacular and the location is great.  It's a shame, really, because the hotel at Aviara is gorgeous, employs hundreds of great, dedicated people and has historically offered tremendous service.  Like all sorts of other businesses in this great recession, it has been impacted.  For those looking for a great vacation, there are some great opportunities that have recently been deposited in II.  Enjoy!


----------



## funtime (Sep 19, 2010)

Jon.  You are a marvelous writer.  Thank you.  Funtime


----------



## GregGH (Sep 23, 2010)

Hi

I had mentioned the possible default in this link ...   http://www.tugbbs.com/forums/showthread.php?t=120271&page=2

but didn't get much traction ...  my final points ( copied here ) still beg for more input ?

Greg
( copy from above post )
So -- options
1) Broadreach use this to squeeze better terms from the lender - and life goes on ( day to day) - it sure causes Hyatt to look over their shoulder and wonder how hard to promote their new location?
2) Got to try hard to feel sorry for any hedge fund - let alone this one - they close and it stays empty for a few years while we wait for the recession/depression to run it's course. If the hotel closes - then the golf course closes (guessing) and area becomes a great bird watching spot.
3) goes into bankruptcy and someone good picks it up for a song - and life starts again ( and if lucky - re-opens as a FS's ?? ( added as extra edit )
4)Broadreach rethinks and pays loan from their other 'wonderful' cash rich investments ( the weakest point )


Will sure cause some crazy speculation in some people. This is one crazy time for investors and vacationers alike.

Wonder what recourse the original investor has ( Marrantz Wolfe ? ) - as they also own several other FS locations including the head office location in Toronto & recently updated Nevis ( but that could be dated into ?)


----------



## cali girl (Sep 24, 2010)

Really good post Jon.


----------



## chibuilder (Sep 25, 2010)

*thanks*

thanks Cali girl and Funtime!


----------



## GregGH (Apr 22, 2013)

Here is another update from local paper

http://www.utsandiego.com/news/2013/apr/19/park-hyatt-aviara-loan-default/?page=1#article-copy

Interesting that Four Seasons are working hard to make their location a 'stand alone' operation - adding the restaurant and the spa soon ...  last visit I went to hotel once in 7 weeks.

Regards
Greg

here is article ...
_CARLSBAD — Owners of the Park Hyatt Aviara have missed two months of loan payments, a sign that the luxury resort is facing the same financial woes that more than two years ago forced it to restructure its heavy debt.

Fitch Ratings reports that the hotel’s $186 million loan was transferred on Wednesday to a special loan servicer after the owners were 60 days past due on their payments. A 60-day delinquency is a standard trigger for such a move, said Mary MacNeill, a managing director with Fitch Ratings.

The role of a special servicing firm, working on behalf of the lender, is to find the best recourse for handling troubled commercial loans, which can include negotiating with the borrower to possibly modify the loan.

Although the hotel’s owners, Broadreach Capital Partners and Maritz, Wolff & Co., were able to modify and extend their loan terms in early 2011, MacNeill said Fitch remains concerned about the hotel’s performance.

“Modifications typically offer some debt service relief to the borrower, in order for the property to recover,” she wrote in an email. “However, the Aviara loan was still not able to pay its debt service.”

Representatives of Broadreach did not return requests for a comment.

The most recent loan repayment problems are reminiscent of what occurred in late 2010 when the owners defaulted on their payments and months later were able to reduce the interest rate on their loan and extend the maturity date to Feb. 11, 2017. Especially telling is the sharp drop in both the hotel’s occupancy rate and average room rates since 2007, when the original loan was issued.

According to Fitch, the occupancy rate averaged 70 percent in 2007. But for the 12 months ending in February of last year, the occupancy rate stood at nearly 54 percent. Similarly, the average rate, which six years ago was $364.87, has plummeted to $242.70, the report showed.

“High-end resorts have performed better than every other hotel market segment over the last 12 months, so you can’t use the economy as an excuse,” said San Diego hotel analyst Bob Rauch said. “One problem they’re having is there’s a lot of competition in Carlsbad now, but no doubt it’s still the best asset in Carlsbad.”

The hotel’s financial troubles also date back to the period when Broadreach engaged in a high-profile feud with Four Seasons Hotels and Resorts over management of the 329-room resort. The very public dispute ultimately went into arbitration, and a panel later ruled that the two companies should terminate their dispute, concluding that both had “contributed to the demise of the business relationship.”

Broadreach then opted to replace Four Seasons with Park Hyatt, the upscale, contemporary Hyatt brand. The large drop in room rates, which apparently did little to boost occupancy, has clearly hurt the hotel, said hotel consultant and broker Tim Edgar.

“The consumer apparently was more comfortable paying that higher rate when it was a Four Seasons, which is more associated with luxury,” said Edgar, a senior vice president with the Orange County brokerage firm, Atlas Hospitality Group. “Just because Hyatt calls it a Park Hyatt, that doesn’t mean the traveling public connects that with luxury.”

Also a big problem, says Rauch, is the hotel's valuation compared to its debt. The Fitch report, he said, shows that the hotel is valued at $120 million, far less than the $186 million owed.

"If a loan is at 100 percent of value, that’s not good, but in this case, not only is there no equity, but they’re 50 percent-plus under water," said Rauch, who also owns hotels in San Diego. "What they really need to do is to try to sell the asset for as much as they can or restructure the loan, which will require significant new equity -- or walk away."_


----------



## Steve (Apr 28, 2013)

Hi Greg,

Thanks for sharing this latest article.  The situation at the Park Hyatt is bleak indeed.  I'm glad that Four Seasons is adding amenities to the Residence Club.  I don't need the hotel.

Steve


----------

