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Default Notice Filed Against The Ritz-Carlton Highlands at Lake Tahoe

Bank of America States the Hotel is Late on $19 million in Payments
 on Loans Totaling $157 million

By Dale Kasler, The Sacramento Bee, Calif.McClatchy-Tribune Regional News

April 27, 2010 --The new Ritz-Carlton luxury hotel at Lake Tahoe has gone into default, the latest sign of trouble for the lake economy and one of its top developers.

The default notice is the first step toward possible foreclosure. It was filed against the Northstar-area hotel March 31, about a month after its developer, East West Resort Development of Avon, Colo., put nearly $1 billion worth of Northstar real estate development into bankruptcy reorganization.

The hotel itself didn't go into bankruptcy, but "it's all interrelated," said Blake Riva, senior partner at East West's Truckee office. "The entire region's impacted."

The manager of the hotel, which charges anywhere from $249 to $4,000 a night, says business has been strong. But East West, which has built hundreds of condominiums and town homes in the area clustered around the Northstar-at-Tahoe ski resort, is suffering from the collapse in the real estate market. Even as the economy starts to recover, consumers are wary about spending money on goodies such as luxury timeshares.

"Resort real estate and vacations fall into the category of discretionary spending," said Ralf Garrison, a consultant in the mountain resort business.

The ski resort itself is owned by Florida real estate firm CNL Lifestyle Properties and is not affected by the bankruptcy or the default.

In its bankruptcy papers, East West said it laid off 40 of the 65 employees at its office in Truckee and has sold some of its Northstar condos and town homes at "steep discounts" to raise cash.

The hotel is behind on $18.7 million in payments on loans totaling $157 million, according to a default notice filed in Placer County by Bank of America.

Riva said the default was caused by "a couple of specific issues we're working to resolve," but declined to go into detail.

The bank's spokesman, Bill Halldin, said BoA always works "with our clients to help them address financial issues."

A default notice is a precursor to foreclosure, although the process gives the borrower time to pay the debt and hold on to the property.

Steven Holt, a spokesman for the hotel, said the default notice hasn't affected day-to-day operations. "It's really their financial situation," he said, referring to East West. Ritz-Carlton runs the hotel under contract with the developer.

Holt said occupancy and room rates have run ahead of projections. "We've had an amazing winter," he said.

The hotel is closed temporarily for maintenance but will reopen May 10, he said.

Tahoe tourism was already getting clobbered by California's Indian casinos when gas prices spiked and the economy fell apart in 2008.

On the south shore, room occupancy fell 5 percent to 7 percent last year and an additional 9 percent so far this year, according to the Lake Tahoe Visitors Authority. The developer of the Chateau at Heavenly, an unfinished $400 million condo/convention center project on Highway 50 in South Lake Tahoe, filed for Chapter 11 reorganization last fall, leaving a massive, idle construction site near the casinos.

On the north shore, the fabled Cal Neva resort, once owned by Frank Sinatra, went into foreclosure last year. It has temporarily closed its casino. Hotel tax collections fell 8 percent last year, according to the North Lake Tahoe Resort Association.

Tahoe's ski resorts have seen some improvement this year, said Carl Ribaudo of Strategic Marketing Group, a South Lake Tahoe consulting firm. But skiers still aren't filling the lake's hotels, he said.

"Someone who might have spent the night before is now a day visitor," he said.

The luxury resort real estate market remains in deep trouble, with the Northstar region among the hardest hit, said Garrison, who analyzes mountain resort travel for the Advisory Group Inc. of Denver.

In its bankruptcy papers, East West said the recession "took its toll on demand for luxury real estate, causing property values to fall markedly, particularly in Lake Tahoe."

The bankruptcy covers four residential communities developed by East West in the Northstar area at a cost of $925 million. They include the completed Village at Northstar at the base of the mountain. Also included are three unfinished projects, the Northstar Highlands development halfway up the mountain near the Ritz-Carlton, and the Old Greenwood and Gray's Crossing golf communities.

In its bankruptcy papers, East West said it ran into difficulties when its investment partner, Crescent Real Estate Equities of Fort Worth, Texas, experienced financial problems of its own.

Crescent was taken over by Barclays Capital last fall after its former owner, Morgan Stanley Real Estate, was unable to meet $2 billion in debt payments to Barclays, according to a report in the Dallas Morning News.

Starved for capital, East West's Northstar developments faced "imminent shutdown of operations and liquidation" prior to filing for Chapter 11, the company said in bankruptcy papers. Liabilities ran to $250 million. The bankrupt developments lost $31.8 million last year on revenue of $38.7 million.

Since then, East West has lined up $32.5 million in new financing for Northstar and has proposed a plan of reorganization in U.S. Bankruptcy Court in Delaware. A hearing is set for May 27 in Wilmington, Del.

Riva said the bankruptcy hasn't affected any of the day-to-day operations at the residential communities, including the golf courses, and Village at Northstar's shops and outdoor skating rink.

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Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/homefront.

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To see more of The Sacramento Bee, or to subscribe to the newspaper, go to http://www.sacbee.com/.

Copyright (c) 2010, The Sacramento Bee, Calif.

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