The lenders that seized eight luxury resorts from Morgan Stanley’s real estate funds hired a law firm to explore a bankruptcy filing for the properties that may come as early as today, said a person familiar with the talks.
Paulson & Co., Winthrop Realty Trust and Capital Trust Inc. asked Kirkland & Ellis LLP to evaluate a bankruptcy as they pursued an extension of senior debt due today, according to the person, who asked not to be named because the talks are private. They have failed to reach agreement with holders of a $1 billion securitized mortgage, the person said.
Paulson and the other investors seized the resorts in a foreclosure auction on Jan. 28. A bankruptcy filing would enable the investors to suspend interest payments while they try to restructure the debt. The court would appoint a receiver and provide a venue and format for the loans to be reworked.
The $1 billion mortgage, backed by five of the former CNL Hotels & Resorts Inc. properties, and $500 million of additional debt mature today. Midland Loan Services, a unit of PNC Financial Services Group Inc., is the special servicer for the mortgage. Frederick Solomon, a PNC spokesman, declined to comment.
Douglas McLemore, executive director of Chicago-based Kirkland & Ellis, didn’t respond to a telephone call and e-mail seeking comment. Armel Leslie, a spokesman for Paulson, didn’t respond to an e-mail after regular business hours yesterday.
Decline in Value
The resorts have fallen in value since Morgan Stanley acquired them for $6.7 billion in 2007. The Paulson group held junior debt that helped finance Morgan Stanley’s acquisition of CNL Hotels, positioning them to foreclose on the equity ownership after the bank defaulted on the debt.
Winthrop Realty and Bill Ackman’s Pershing Square Capital Management LP previously tried to wrest control of Manhattan’s Stuyvesant Town-Peter Cooper Village with junior debt and ended up selling their stake to representatives of the senior lenders, who were poised to foreclose on the apartment complex.
The former CNL properties are the Grand Wailea Resort Hotel and Spa in Hawaii; the La Quinta Resort and Club and adjacent PGA West golf course in La Quinta, California; the JW Marriott Desert Ridge Resort and Arizona Biltmore Resort and Spa, both in Phoenix; the Doral Golf Resort and Spa in Miami; the JW Marriott Grande Lakes and Ritz-Carlton Grande Lakes, both in Orlando, Florida; and the Claremont Resort & Spa in Berkeley, California.
Erica Platt, a spokeswoman at Morgan Stanley, declined to comment. Beverly Bergman, a spokeswoman for Boston-based Winthrop, referred questions to Paulson. Douglas Armer, head of investor relations for Capital Trust, didn’t respond to an e-mail seeking comment.
Morgan Stanley financed its CNL acquisition with $1.5 billion of senior debt, $1 billion of mezzanine debt and $800 million of corporate debt, which was previously restructured.