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Washington Holdings Takes Control of the St. Regis Monarch Beach
 in a Deal Estimated at $235 million

Starwood Hotels & Resorts Continues as Operator


By Roger Vincent and E. Scott Reckard Los Angeles TimesMcClatchy-Tribune Regional News

April 7, 2010 - St. Regis Monarch Beach, the posh Orange County resort tarred in a public backlash to corporate travel spending, has a new owner after a transaction that values the property at about $235 million.

Seattle real estate investment company Washington Holdings said Tuesday that it had taken control of the five-star resort and golf course in Dana Point. The venue gained notoriety in 2008 when American International Group Inc. sponsored a luxury retreat there just days after accepting a federal bailout.

Like other hotels, the 400-room resort was hammered by the downturn in the economy. It was further battered as corporate executives canceled meetings and retreats at upscale resorts in part because they didn't want to appear to be living large while a recession squeezed the middle and lower classes.

With the St. Regis at ground zero of the so-called AIG effect, which helped stifle corporate events across the country, group bookings at the hotel plummeted.

Previous owners had refinanced the hotel at the top of the market in 2007, loading it with debt that became burdensome when the economy turned sour. The senior mortgage of $230 million was held by Prudential and Washington Holdings. A secondary loan of $70 million was held by Citigroup Inc.

Last July, Citigroup Inc. took title to St. Regis because the loan it held was in default. As owner, Citigroup was required to make payments on the senior loan while it looked for a buyer. After lengthy negotiations, Washington Holdings took title Monday in a transaction that let Citigroup walk away with about $5 million.

Some of the details remain confidential, but people familiar with the deal put the total value of the transaction at $235 million in cash and debt. Washington Holdings now has a $165-million mortgage with Prudential and a $40-million mezzanine loan with another source, in effect reducing debt on the hotel to $205 million from $300 million. Officials at Citigroup declined to comment.

The deal was larger than some observers had expected. Last summer, as the hotel industry was sent reeling by declining occupancy and room rates, consultant Alan X. Reay of Atlas Hospitality Group in Costa Mesa had said the St. Regis was probably not worth much more than $100 million.

The new owners say the St. Regis is now in a better position to compete.

"The bottom line is that this hotel had too much debt on it and otherwise is a perfectly viable, successful and amazing property," said Craig Wrench, chief executive of Washington Holdings.

As California's only five-star, five-diamond coastal resort with a full golf course, the St. Regis is "a special property," said hotel industry investment banker Don Wise of Johnson Capital. "It just got clobbered with so may ill effects of the economy that debt became problematic."

The St. Regis was designed to get about 70% of its business from meetings and 30% from leisure travelers, Wise said. The collapse of the corporate meetings travel market has been devastating to the St. Regis and nearby resorts such as the Montage, Ritz-Carlton and Pelican Hill, Wise said.

The approach of vacation season offers a glimmer of hope for resort operators, Wise said.

Washington Holdings will invest in upgrades at the hotel, starting with the golf course, Wrench said. "We anticipate giving it some tender loving care. The hotel itself is in fabulous shape."

The hotel will continue to be operated as a St. Regis by Starwood Hotels & Resorts Worldwide Inc., Wrench said. He hopes that with the reduction of debt the hotel can be financially self-sustaining until the lodging industry improves.

"We're still in a troubled economy," Wrench said, "and we need another six to 12 months or maybe 18 months of recovery to be back where we need to be."

roger.vincent@latimes.com

scott.reckard@latimes.com

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