|By Ashley Ratcliff, Palos Verdes
Peninsula News, Calif.McClatchy-Tribune Regional News
August 27, 2009 - RANCHO PALOS VERDES -- The tide has turned rough for Terranea Resort, the $480-million oceanfront project some 12 years in the making. While there still are high hopes for the resort's success, there is speculation that it may soon head into foreclosure.
More than two months since opening, the Federal Deposit Insurance Corp. opened Terranea's primary lender, Chicago-based Corus Bankshares, for bids due on Sept. 3. Next, the Rancho Palos Verdes City Council rescinded a transient occupancy tax agreement that would have provided the resort with an 80-percent rebate of up to $8.2 million during a 34-month period because its lenders prevented it from opting in. News broke last week that Terranea's "mezzanine," or second-tier, lenders -- a group that includes Microsoft billionaire Bill Gates' Cascade Investment LLC -- on Aug. 11 filed a notice of default with Los Angeles County for its $110-million loan to the resort.
Now, the talk of the town has become what all this means for the future of the luxury resort, which boasts a 360-room hotel, nine-hole golf course, spa, pools and restaurants.
Some maintain that Terranea Resort is here to stay, even during this time of economic uncertainty.
"The fundamental truth of it, I believe, is this new centerpiece resort in our community is going to be here for the next 100 years," Mayor Larry Clark said. "There will obviously be some changes in the financing of it, and there may even be some changes in ownership. But the fact of the matter is, it's a resounding success as a destination resort for people from throughout our region, country and the world, and a tremendous public-serving amenity for our community -- and it will continue to be."
According to Clark, the notice of default doesn't affect Rancho Palos Verdes.
The city currently is gaining 100 percent of the TOT, which amounts to more than $400,000 in July and August, for use in the general fund. (A TOT is levied on guests staying in hotels, motels and inns less than 30 days; cities and counties are authorized to collect the "hotel bed" tax through an ordinance passed by the county's board of supervisors).
Bruce Galloway, a real estate attorney who helped Rancho Palos Verdes negotiate the thwarted TOT rebate, said the notice of default essentially is the first step in foreclosure and could happen within 130 days.
The notice legally has to be filed, and thereby starts a timeframe running, "but it doesn't necessarily lead to a foreclosure," explained Bob Lowe, CEO and chair of Lowe Enterprises, which oversees Terranea owners Long Point Development Partners. "The mezzanine lenders took that action to protect its position in the property."
The resort isn't in default on any of the payments to the mezzanine lender, he said.
Asked if the resort will foreclose, Lowe responded, "There's no plans whatsoever one way or the other."
The notice of default doesn't change Terranea's operations in the meantime, Lowe said, or the ongoing conversations with both lenders.
"We're working in a constructive manner with both lenders in a manner to try and resolve this for the betterment of Terranea ... Our hope is that the current ownership, under our management, continues to own and operate the hotel long-term," Lowe said. "That's what we're in discussion with the lenders about -- how to resolve the problems with the first trustee lender and move forward in a positive way."
Terranea is up to $322 million in loans, including $180 million from Corus. Lowe said the resort's partners and lenders are examining the best way to restructure the capital on the debt going forward.
Others aren't as optimistic that the situation will improve.
RPV resident Mark Wells, who chided council on Aug. 18 for pursuing the TOT rebate, said while he hopes to see the resort survive, the signs point otherwise.
"My prediction is that the resort will close sometime between the beginning of October and the end of February," Wells said, "or that the management will change. I don't see Mr. Lowe staying in charge of this, and having it stay open much longer. I think the combination of the failure of Corus Bank and the foreclosure that Bob is going through with his mezzanine lenders is an indication that times are tough, and it doesn't look like it's getting much better for the resort industry."
According to Lowe, the other Lowe Enterprises properties throughout the country are doing "a little better than average" than the industry, with revenues down 15 to 20 percent varying by location.
However, Lowe said things may start looking up for the hotel business.
"If the economists are correct, that we hit the bottom and will see a gradual turn around in the economy, that will lead to gradual improvement in the hospitality industry, which could become pretty significant by this time next year," he said.
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Copyright (c) 2009, Palos Verdes Peninsula News, Calif.
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