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S.F.'s Four Seasons close to foreclosure

The Four Seasons San Francisco is heading closer to foreclosure after lenders rejected owner Millennium Partners’ proposal to renegotiate the loan on the property, according to the credit-rating agency Realpoint.

In June, Millennium Partners “strategically withheld payment of debt service” on the $90 million loan in an effort to force the servicer on the loan, LNR Property Corp., to enter into negotiations. In October, Millennium “submitted a proposal that the servicer deemed to be unacceptable,” according to Realpoint. The servicer — loans are generally placed with a special servicer when they are in or approaching default — then issued a notice of sale to proceed with the foreclosure.

Through a spokesperson, Millennium would not comment on the development.

A Realpoint analysis of the loan estimates that the current value of the loan on the 277-room hotel would be $55.7 million, a 38.2 percent decline from the loan’s $90 million value.

Since the beginning of 2009 the number of hotels in default in California has jumped 391 percent to 260 from 53, according to Atlas Hospitality Group. California currently has 27,893 hotel rooms in default, an increase of 426 percent over last year.

The possible foreclosure of one of San Francisco’s most luxurious hotels comes at a time when the tourism industry is struggling, according to hotel consultant Rick Swig. Occupancy has dipped to 50 percent in the last few weeks, and San Francisco will host only one major convention in January. The city is on track to log 750,000 hotel guest nights in 2010, down from 825,000 this year.

“We’ve had five full quarters of extreme downward movement,” said Swig. “To face two more quarters of further decline, well to put it simply, owners are running out of cash.”

Investors pumped $2.8 billion into San Francisco hotel investments from 2005 to 2007 using cheap commercial mortgage-backed securities debt. Most of the city’s landmark hotels sold or refinanced during that period, with properties like the Westin St. Francis selling for $440 million, or $368,000 per room, and the Hilton San Francisco trading for $737 million, or $386,000 per room.

In addition to the Four Seasons and 393-room Renaissance Stanford Court Hotel in Nob Hill, which JER Partners defaulted on last spring, seven other San Francisco hotels are either in early stages of default or have been referred to a special servicer in anticipation of a default, according to Atlas Hospitality. The largest of these is the 360-room Le Méridien San Francisco at 333 Battery St., which HEI Hotels & Resorts bought in March 2006 for $126 million, or $300,000 a room.

The only hotel that has sold in the past 18 months was the 404-room W Hotel, which Hong Kong investor Keck Seng bought last summer for $222,772 a room. Brokers estimate the price was 50 percent what it would have been worth in early 2007.

“There is going to be a drought of business and a drought of cash flow. Push is going to come to shove. And it’s all going to happen in the next 120 days,” said Swig.

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