Paulson-Led Group to Sell Hotels to End Their Bankruptcy

A group led by Paulson & Co. plans to sell the Arizona Biltmore resort and the Claremont Hotel Club & Spa in Berkeley, California, as part of an effort to bring the properties and two other hotels out of bankruptcy.

Paulson, a New York-based hedge fund, and co-investor Winthrop Realty Trust (FUR) are marketing the Arizona Biltmore in Phoenix with a opening price of $425 million, and the 279-room Claremont Hotel starting at $80 million, according to two people familiar with the plans, who asked not to be identified because the marketing details are private.

The Paulson group placed the hotels and three others in bankruptcy last year after seizing them in a foreclosure auction. Two of the properties, Grand Wailea in Hawaii and La Quinta Resort & Club in California, may also be sold as the group seeks to remove the resorts from bankruptcy, said Michael Ashner, chief executive officer of Boston-based Winthrop.

“We are at a point in the process in which we are considering a reorganization in which we would retain ownership of the Grand Wailea and La Quinta, or an alternative approach in which we would sell the Grand Wailea and La Quinta and bid as a stalking horse,” Ashner said in a telephone interview.

Should the group decide to sell Grand Wailea and La Quinta Resort, Paulson, Winthrop and co-investor Capital Trust Inc. (CT) would serve as a so-called stalking horse by making the opening bid at auction. The group may also choose to retain ownership of the two properties and restructure their debt as a way to take advantage of an expected turnaround in the luxury lodging market, Ashner said.

Luxury Hotels Outperform

Michael Barr, a portfolio manager at Paulson, declined to comment. Saul Burian, a managing director at Houlihan Lokey who serves as an adviser to the lender group, didn’t return a telephone call seeking comment.

Occupancies at hotels in the top 25 U.S. markets rose to 65 percent in the first quarter from about 63 percent a year earlier, while revenue per available room, an industry measure of occupancies and rates, climbed 8.1 percent to $80.47, according to Hendersonville, Tennessee-based Smith Travel Research Inc.

At luxury hotels across the U.S., occupancies were 71 percent, the highest among seven industry segments tracked by Smith Travel, and revpar gained 8.5 percent to $193.49, the largest increase among the segments.

‘Recovered First’

“Luxury properties generally have recovered first in the U.S., which means their revenues have risen faster than those in other segments,” such as upscale or economy hotels, said Bruce Ford, senior vice president of sales at Lodging Econometrics, a Portsmouth, New Hampshire-based hotel-consulting firm.

Luxury hotels in large cities tend to attract real estate investment trusts as buyers because they can close deals quickly and accept lower initial rates of return, Ford said.

The Paulson-led lender group took the four properties and a fifth, Doral Golf Resort & Spa in Miami, into Chapter 11 bankruptcy in February 2011 after seizing control of them from Morgan Stanley (MS)’s real estate funds. The hotels faced maturity of $1 billion in mortgages and $525 million in mezzanine debt.

Donald Trump has the bankruptcy court’s approval to buy the Doral resort for $150 million. The Trump Organization expects to take over the property by June, the company said in a statement. The Paulson group will retain Doral’s 131-acre (53-hectare) Great White Course for later commercial or residential development.

Hilton Removal

The Paulson-led group plans to remove Hilton Worldwide Inc. as manager of the Arizona Biltmore, La Quinta Resort and the Grand Wailea, according to to documents filed with the bankruptcy court. Hilton’s removal would “unlock substantial value,” according to the filings.

The Arizona Biltmore is being marketed to buyers free of the Hilton contracts. The Claremont, operated by Pyramid Resort Asset Management LLC, also is being marketed without a management contract, said Mark Elliott, a partner at Atlanta- based brokerage Hodges Ward Elliott who’s marketing the property.

The lead case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net; Nadja Brandt in Los Angeles at nbrandt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net