The Mauna Lani Ritz-Carlton Hotel is a gleaming gem on Hawaii's Kohala Coast. With its exotic koa wood paneling, marble floors, and crystal chandeliers, the 542-room hotel is designed to give the illusion of a stately seaside mansion. However, construction cost overruns of approximately $13 million and disappointing occupancy rates have made it more like a house of horrors. "They overpaid big-time," says a former top executive of the hotel's parent company, Ritz-Carlton Hotel Co.

Penny-pinching is not exactly a trademark of Ritz Chairman William B. Johnson. A little-known Atlanta real estate investor, he purchased the rights to the Ritz-Carlton name in 1983, when he bought the legendary Boston Ritz-Carlton Hotel. Since then, he has aggressively expanded the privately held company, loading up on debt and entering markets from Pasadena, Calif., to Pentagon City, Va. (table). Ritz-Carlton Hotel Co. has full or part ownership of 13 of the chain's 25 hotels. Among its investors: Willard G. Rouse III, Prudential Realty Group, John F. McDonnell of McDonnell Douglas, and Ford Motor's real estate arm.

CASH-STRAPPED. But now, with a worldwide hotel glut and an industry that is trying to shrug off the effects of the recession, people close to Johnson's company say it is more than $1 billion in debt, strapped for cash, and finding it difficult to meet its debt service. Ritz President Horst H. Schulze, who concedes that the company is in default on a $70 million loan and is seeking to restructure other debt, denies the company is in trouble. So far, none of its lenders has sought foreclosure. But some industry sources say a massive restructuring--likely involving such lenders as Bank of Tokyo Trust, Sumitomo, and Shimizu Land--may be in the works.

In a worst-case scenario, Johnson would give up the equity in the hotels he owns and merely act as a management agent. "Basically, they're at the mercy of their lenders right now, only the empire is so fragmented, like with Olympia & York, that no one's pieced it all together," says a source familiar with the company. Schulze vehemently denies that the Ritz has any serious financial problems.

Johnson, meanwhile, is unrelenting in his determination to build lavishly and expand as far as his investors will finance him. This year, he is opening four Ritzes and is in discussions with potential backers for 20 more. Johnson declined to be interviewed for this article.

INSOLVENT? He will have a hard time getting any more backing from New York-based Teachers Insurance & Annuity Assn. The $58 billion insurer hasn't received the most recent payment on its $70 million loan for the Kansas City (Mo.) Ritz-Carlton--owned in part by a unit of the real estate firm J.C. Nichols Co. And Teachers is suing to get out of an additional $80 million loan commitment for the Tysons Corner Ritz-Carlton that opened last year in McLean, Va. Teachers claims the Virginia hotel is now worth only $50 million and is effectively insolvent. Says Schulze: "We disagree that the reduced market value should allow Teachers to pull out of this."

The Teachers dispute may be just the beginning of the headaches for Johnson and the Ritz. Few of the hotels are able to service their debt at current occupancy and room rates, say people close to the company. At its current average rate of $134 a night, for instance, the Buckhead Ritz-Carlton in Atlanta would need better than 100% occupancy every night of the year to cover its debt, estimates a consultant familiar with the hotel. Schulze claims that the Buckhead property is doing "exceptionally well."

But Schulze confirms that the Mauna Lani, in which Johnson has a one-third interest, hasn't lived up to Ritz's expectations. There was a "minor cash call," to make a debt payment, he says. The hotel averaged only 44% occupancy last year, the consultant says. Schulze declined to confirm the number. But if things ever get too bad with any of the properties, he says, the Ritz-Carlton Hotel Co. could walk away from its nonrecourse loans, which give lenders no claim against the parent: "We would still have a management fee and would be very happy."

Owner Bill Johnson has plenty of management experience, but only lately with such a fancy outfit as Ritz-Carlton. A self-made man, he ventured into entrepreneurship with a Waffle House Inc. franchise back in the 1960s. Today, Johnson owns some 100 Waffle Houses, 10 Holiday Inns, and a Marriott. His greatest coup, rival hoteliers say, was purchasing the Ritz name for some $70 million in 1983. "A brilliant move," says Darryl Hartley-Leonard, president of Hyatt Hotels Corp. Only one Ritz, in Chicago, is independently managed.

DISGRUNTLED. Johnson's reputation as a shrewd operator and a masterful dealmaker garnered him numerous investors. Some say they are thrilled: "It's being managed superbly," says Allen Ostroff, senior vice-president of Prudential Realty Group, which owns 90% of the Ritz-Carlton in Laguna Niguel, Calif. He has good reason to be upbeat: Last year the hotel had a 70% occupancy rate, better than its local rivals, and average room rates topped $200 a night. "Over 90% of our outside investors are exceedingly happy," Schulze insists. "In some cases, their real estate results at the moment don't look as good, but operating results are excellent."

Many investors don't see it that way. New York's secretive Lee family, which lent Johnson some $136 million to refinance his flagship Boston property in exchange for a future ownership interest, is in negotiations to take control of the hotel, according to sources close to the situation. Koichi Lee declines to comment. Schulze confirms that "intricate discussions" are taking place but declines to elaborate. Other outside investors, stuck with underperforming properties in glutted markets, are disgruntled as well. The chain "expanded too quickly, and the properties have too much money in them at this point," says a real estate executive who works with one California Ritz investor.

To Schulze, such thinking is short-term and ill-conceived. "A hotel is built for not three years, but for 60 years," he says in hushed tones, leaning forward in his chair. "I assure you that the Ritz- Carlton Hotel Co. will be here for many, many years." That may be. But if Johnson can't figure out a way to keep his lenders happy, his role in the company's future may be vastly reduced.

      Since buying the Boston Ritz-Carlton in 1983, Bill Johnson has expanded the 
      chain by adding 21 new hotels and acquiring three others
      Year opened               Locations
      1984             Atlanta (two hotels); Laguna Niguel, Calif.
      1985             Naples, Fla.
      1988             Houston; Phoenix; Rancho Mirage, Calif.
      1989             Dearborn, Mich.; New York (acquired); Washington (acquired)
      1990             Cleveland; Kansas City, Mo. (acquired); Marina del Rey,
                       Calif.; Mauna Lani, Hawaii; Pentagon City, Va.; Philadelphia;
                       St. Louis; Sydney, Australia
      1991             Amelia Island, Fla.; Double Bay, Australia; McLean, Va.;
                       Palm Beach, Fla.; Pasadena, Calif.; San Francisco
      1992*            Aspen, Colo.; Barcelona, Spain; Hong Kong; Kapalua, Hawaii
      1993*            Cancun, Mexico
      * Planned        DATE: COMPANY REPORTS
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