Jun. 5, 2002 - A pricey designer hotel is facing the first foreclosure to hit the Miami Beach resort industry since Sept. 11, city and lending officials said, adding to worries over a possible shakeout of the city's prized roster of boutique hotels. 

The Hotel Impala in South Beach insists a stubborn lender is causing its ruin. But others following the industry say the Impala reflects the grim situation facing other small hotels on the Beach as national chains slash rates for budget-conscious tourists. 

The 17-room Impala hasn't made a loan payment since before the Sept. 11 attacks, which prompted 80 percent of its October guests to cancel their reservations. In December, owner Angela Randall secured a $396,000 emergency federal loan for businesses hurt by Sept. 11, but mortgage-holder GMAC wouldn't accept the money, saying it doubted the Impala could survive. 

"Market conditions in Miami Beach do not bode well for small hotels, off the beach, with few amenities," GMAC executive John Maute wrote in a May 7 letter on the matter. 

With far fewer rooms and small staffs, boutique hotels have struggled to turn a profit as their large corporate competitors cut costs and slash rates in an effort to fill rooms while protecting the bottom line, industry experts said. While large hotels have used their conference facilities and group rates to lure business groups, boutiques were left to rely on weakened tourism traffic. 

"I think there's a lot of them that are struggling -- a lot more than people might think," Colonial Bank senior lender Abel Iglesias said of the Beach's boutique hotels. He expects the worst is yet to come: "Let's face it. We're heading into the hot days of summer." Revenue is off almost 20 percent this year for the Miami area's larger boutique hotels, compared with a 16 percent drop for the rest of the industry here, according to Smith Travel Research. 

Fortunes were reversed two years ago: In 2000, the boutiques here saw revenues rise 7 percent, while the rest of the industry saw a 5 percent increase. 

At the Impala, where a fountain bubbles in the cloistered courtyard outside, business used to be brisk enough to make the $28,353 monthly mortgage payment without much worry, said Janice Vallely, who runs the hotel with Randall. The best suite there rents for $400 a night, and the cheapest room goes for $185. 

The two moved to the Beach in 1997 after separate careers in Boston, and this was their first try in the hotel business. Vallely borrowed $2.1 million from a local lender, which then sold the loan on Wall Street into a pool of other commercial mortgages administered by GMAC, the banking arm of General Motors. 

Impala missed its first loan payment after the Sept. 11 attacks, but was ready to start making payments again after securing the SBA loan in December. But the hotel wanted to wait until this summer to pay the three installments it missed. 

GMAC said Randall never got approval for adding more debt to the hotel by accepting the SBA loan, and said the extra mortgage -- the third on the property -- could hurt dividends flowing from the larger pool of loans GMAC is charged with protecting. GMAC filed suit in January to foreclose. 

But Vallely branded GMAC's San Francisco-based commercial division as an out-of-state lender with little concern over whether a local business fails. Even with the federal government willing to help, GMAC has refused to budge, she said. 

"These people know they're wiping us out," Vallely said. 

She has taken her case to local members of Congress, who have written letters on the Impala's behalf. U.S. Rep. Carrie P. Meek, D-Miami, asked the SBA to investigate the matter, saying she was troubled a business might close as a result of receiving federal assistance. 

But GMAC's Maute, in his May 7 letter responding to U.S. Rep. Mark Foley, R-West Palm Beach, said it was not punishing the Impala for securing the loan. In fact, it would accept the SBA funds provided the third mortgage didn't hurt its bond-holding investors. But Maute suggested optimism was not appropriate. 

"While the borrower, of course, wants to believe that business will improve," he wrote, "she seeks to shift the risk that she is mistaken onto the certificate holders." 

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(c) 2002, The Miami Herald. Distributed by Knight Ridder/Tribune Business News. GM,