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JW Marriott Starr Pass Resort & Spa in Tucson, Arizona Avoids Auction Block,
for Now, as Lenders Do Battle



By Dale Quinn, The Arizona Daily Star, TucsonMcClatchy-Tribune Regional News

Feb. 05, 2012--An auction on the JW Marriott Starr Pass Resort & Spa, originally scheduled for Thursday, has been pushed to March 2.

Last fall, the company that owns the massive resort, which sits in the rocky slopes of the Tucson Mountains west of downtown, defaulted on a $145 million loan recorded in August 2006.

Starr Pass Resort Developments, the owner, took on the debt before the real estate bubble burst and the property, which opened in 2005, was only just getting its footing when business and leisure travel screeched to a near halt.

Christopher Ansley, who developed the property, found himself unable to pay the debt, and on Oct. 12, lender U.S. Bank National Association notified him of plans to initiate the foreclosure process.

An auction was scheduled for 1 p.m. Thursday on the steps of the Pima County Courthouse. But, with debt negotiations ongoing, the lender decided to delay the sale for another month, said Jeffrey S. Pitcher, an attorney for Ballard Spahr in Phoenix who is representing U.S. Bank.

Among its features, the resort property includes a 20,000-square-foot spa, a 27-hole Arnold Palmer-designed golf course, three swimming pools and 88,000 square feet of meeting space.

Those who run the day-to-day operations at the resort have said in previous interviews the foreclosure is strictly a matter between the property owner and the lender. It shouldn't have an impact on a customer's experience at the resort, they said.

U.S. Bank isn't the only lender trying to get cash out of the financially distressed property. The same day Ansley borrowed $145 million from the bank, court documents say he secured a $20 million mezzanine loan -- kind of like a second mortgage -- from RFC CDO 2006-1 Ltd.

That loan is also in default.

After U.S. Bank started its foreclosure process, the mezzanine lender moved to take over the property by scheduling its own auction of the ownership interests under the uniform commercial code.

That auction would have taken place before U.S. Bank's foreclosure sale.

U.S. Bank, worried the mezzanine lender would use that sale to steer the property toward bankruptcy and "cram down" the value of its secured debt, filed suit in Pima County Superior Court to stop it.

Attorneys for U.S. Bank argued that a sale under the uniform commercial code would violate provisions of an agreement between it and the mezzanine lender. U.S. Bank, which is acting as trustee for investors in the commercial mortgage-backed-security loan, would lose millions if the value of the resort was written down during a bankruptcy or loan renegotiation, the bank's attorneys said.

The case was later moved to federal court and in a ruling last December, U.S. District Judge David C. Bury agreed to stop the mezzanine lender's sale of the property.

Bury said in his order that under the terms of the agreement, the mezzanine lender could carry out the sale only if it paid the balance of the resort owners' debt, which matured and was due in full in August 2010.

Bury's decision is significant, Pitcher said, because a sale under the uniform commercial code has become a new tactic used by mezzanine lenders to take over commercial properties and jump ahead of a senior lender when time comes to collect the debt.

Contact reporter Dale Quinn at dquinn@azstarnet.com or 573-4197.

___

(c)2012 The Arizona Daily Star (Tucson, Ariz.)

Visit The Arizona Daily Star (Tucson, Ariz.) at www.azstarnet.com

Distributed by MCT Information Services



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