by Megan Neighbor – Feb. 3, 2011
The Arizona Republic

In a strategic move by its new ownership group to get a fresh financial start, the Arizona Biltmore, one of Phoenix’s oldest and most iconic resorts, has gone into bankruptcy.

The resort’s business will continue as usual during peak tourism season despite the filing, according to CNL-AB LLC, which is made up of investors from Paulson & Co. Inc. and Winthrop Realty Trust.

The announcement that CNL-AB was filing for Chapter 11 reorganization came only days after CNL-AB assumed ownership of the property at a Jan. 28 foreclosure auction.

Morgan Stanley Real Estate, the property’s lender from 2007 until last month, defaulted on a collateralized loan that CNL-AB had backed.

As a result, CNL-AB absorbed the Biltmore and seven other resorts included in an investment portfolio. It also assumed over $1.525 billion of debt, $1 billion of that from a securitized mortgage that matured Feb. 1, the day of the bankruptcy-protection filing.

Only five of the eight resorts in the portfolio are listed in the filing. One of the resorts acquired but not listed in the bankruptcy filing is the JW Marriott Desert Ridge in northeast Phoenix.

Its debt will become mature in May 2012, according to Armel Leslie of Walek & Associates, the corporation’s public-relations firm.

The Biltmore is one in a long string of hotels and resorts in the Valley that have switched hands in recent years. Property owners that sought financing during the economic boom in 2006 and 2007 are often saddled with debt payments that far exceed the property’s value and are forced into foreclosure or bankruptcy.

The Pointe Hilton Tapatio Cliffs Resort in Phoenix, the Intercontinental Montelucia Resort and Spa in Paradise Valley and the Wigwam Golf Resort and Spa in Litchfield Park are a few of the large resorts that have experienced more recent ownership changes due to financial troubles.

The Biltmore is a testament to the resilience of the industry. In February 1990, then-ownership group Lepercq/DBL filed for bankruptcy protection after defaulting on a $125 million loan.

The resort remained open and operating during the proceedings, as it will in 2011, the new ownership group said.

“The cost of paying management obligations of roughly $21 million to the resort manager is far outweighed by the benefit of preserving and maintaining the value of the debtor’s assets,” said Derek Pitts, managing director of Houlihan Lokey Capital Inc., the debtor’s financial adviser and investment-banking firm, in court documents.

The Arizona Biltmore is managed by Hilton Worldwide under the Waldorf Astoria Hotels and Resorts collection, its luxury brand. A spokeswoman for the hotel would not comment on the bankruptcy Wednesday.

Under the Biltmore’s former ownership, the resort underwent a $16 million renovation. One upgrade included Ocatilla, a “hotel within a hotel,” which opened in 2009.

The Biltmore has 740 rooms and suites, and 100,000 square feet of meeting space.

In December 2009, Valley businessman and sports executive Jerry Colangelo and his partners purchased the Wigwam and two of the Biltmore’s golf courses for $45 million. The courses were not among the eight resorts and 14 golf courses listed in the bankruptcy filings.

In addition to the Biltmore, resorts in the filing are La Quinta Resort and Club in California; Grand Wailea Resort Hotel and Spa in Hawaii; Doral Golf Resort and Spa in Miami; and Claremont Resort and Spa in Berkeley, Calif.

Those not included in the filing, but part of the Jan. 28 acquisition, are JW Marriott Desert Ridge, Ritz Carlton Grand Lakes and JW Marriott Grande Lakes, both in Orlando.

The case is in U.S. Bankruptcy Court, Southern District of New York, under MSR Resort Golf Course LLC.