June 10, 2009 - Dana Point�s ritzy St. Regis Monarch Beach Resort will get a new owner next month if a foreclosure-driven sale moves forward.

An affiliate of New York-based Citigroup Inc. is moving to foreclose on the 400-room hotel, one of Orange County�s highest-profile luxury resorts.

An auction of the St. Regis, which opened in 2001, is scheduled for July 7 at the local offices of First American Title, part of Santa Ana-based First American Corp.

The hotel, which is operates under Starwood Hotels & Resorts Worldwide Inc.'s St. Regis brand, now is owned and run by Newport Beach-based Makar Properties LLC, in a partnership with a unit of San Francisco-based hedge fund Farallon Capital Management LLC.

Makar opened the St. Regis in 2001 and turned it into one of the county's poshest resorts, known for hosting lavish holiday parties and political fundraisers, as well as catering to corporate guests such as bailed-out insurer American International Group Inc. last year.

The resort, which sits next to Pacific Coast Highway near the border of Dana Point and Laguna Beach, counts three swimming pools, eight tennis courts, and a number of upscale restaurants, among other amenities.

A sale of the property also would include the Robert Trent Jones Jr.-designed Monarch Beach Golf Links, according to court documents.

Like other area hotels, the five-star property�s faced a tough time keeping occupancy levels high the past year due to the recession, in particular because of cutbacks by corporate-sponsored visitors.

Officials reported seeing a 20% drop in business in the months following AIG�s well-publicized corporate outing at St. Regis last fall.
The property�s owners are also faced with a dire economic environment that�s impacted the values of resort properties across the country.
The St. Regis has about $300 million worth of debt tied to it, according to foreclosure-related documents filed with New York courts. That includes a $230 million mortgage from Prudential as well as a $70 million mezzanine loan funded by Citigroup.

The resort�s currently worth closer to $150 million today, given the current economic situation facing the hotel industry, said Alan Reay, president of Atlas Hospitality Group, an Irvine-based hotel consultancy.

�There�s a strong chance that a number of trophy properties will be going back to the lender. Properties have dropped so far in value� the past year," Reay said.

The current Makar-Farallon partnership, operating under the name Makallon Resorts I LLC, stopped making payments on the property earlier this year, according to industry sources.

A foreclosure had been predicted by some locals for as early as May; sources familiar with the property�s ownership expressed doubts that Makar would see any current profits from the property as early as a year ago.

Makar couild have taken profits out of the hotel when it was refinanced in 2007.

Citigroup�s position as the mezzanine lender gives it the first chance at foreclosing on the property. It�s expected the bank will make an attempt at taking ownership of the property at the auction next month.

There still is a chance that the property�s current owners could renegotiate terms of its loan with the bank and avert a foreclosure, sources said.

(Reprinted with permission - The Orange County Business Journal)

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