recoup the $180 million he personally invested in Temenos. "I think that I exhibited an element of hubris," he said. Resort development "was not my area of expertise by any stretch of the imagination." For some ultrawealthy Americans like Mr. Sillerman, trophy hotel investments made during the real-estate boom have turned into major burdens. Some newly opened properties aren't generating enough cash to cover operating expenses. Construction of others is being halted as lenders and investors pull out. During the first nine months of the year, developers postponed or canceled 43 luxury hotels totaling about 9,300 rooms in the U.S. and the Caribbean, according to research firm Lodging Econometrics. While veteran hoteliers are accustomed to booms and busts, the newcomers are getting a sobering lesson in the risks of owning and developing high-end lodging, which has been hit hard by the real-estate bust. An investment group headed by Dell Inc. founder Michael Dell teamed with Rockpoint Capital LLC to acquire the Four Seasons Hualalai in Hawaii in 2006. Since then, the 243-room hotel's annual cash flow has fallen to $7.9 million, from $20.6 million, and its occupancy rate declined by 33 percentage points to 54%, loan documents indicate. A hotel executive says part of the decline was due to a renovation that temporarily closed some rooms. View Full Image Matthew Craig/MJR for The Wall Street Journal A partially finished beachfront residence sits beside the skeleton of another unfinished home. Ty Warner, the Beanie Baby mogul, might lose his slumping Four Seasons New York and three other luxury hotels to foreclosure unless he can land a one-year extension on the properties' $345 million securitized mortgage, which comes due Jan. 9, according to credit-rating company Realpoint LLC. Microsoft Corp. founder Bill Gates has run into several problems on the hotel front. In 2007, his personal investment company teamed with Saudi Prince Alwaleed bin Talal to acquire Four Seasons Hotels & Resorts, which manages 82 luxury properties, for $3.4 billion. Since then, revenue per available room at those properties is down 25%. In addition, his investment company is foreclosing on the 582-room Terranea Resort in Palos Verdes, Calif., which defaulted on a $110 million loan from Mr. Gates's firm shortly after opening in June. EBay Inc. founder Pierre Omidyar is a major investor in Montage Hotels & Resorts, which owns two luxury hotels in California and one about to open in Utah. At its new Beverly Hills boutique hotel, occupancy is running about 60%, and only four of its 20 residences have sold so far. Buyers at Temenos Residence Resort in Anguilla paid seven-figure prices for a pristine location and top-line amenities. Even "The Da Vinci Code" author Dan Brown invested here. But construction has stalled, leaving buyers in the lurch. WSJ's Kris Hudson reports. Years ago, most large hotels and resorts were owned by companies such as Hilton Worldwide Inc. and Marriott International Inc. But in the late 1980s, the big hotel companies began selling off their properties to focus on managing and operating hotels owned by others. Wealthy investors sometimes view high-end hotels and resorts as a way to highlight their personal approaches to luxury living, says Jim Taylor, vice chairman of the Harrison Group in Waterbury, Conn., which tracks the spending and investing habits of the wealthy. "It's a business...where they'd have a distinctive idea of what works," he says. "There's also ego value in ownership of a hotel." The industry is now in a major slump. Since 2007, revenue per available room at North American luxury hotels, including in the Caribbean, dropped 26%, to an average of $141.58, according to Smith Travel Research. That compares with an 18% decline to $56.53 for all U.S. hotels. This year, occupancy rates at North American luxury resorts have declined 10 percentage points to 60.3%, outpacing the eight-point slide for all North American hotels, according to Smith Travel. Potentially making matters worse, luxury hotels begun in the final years of the boom are now being completed, adding to the supply. "I think we're looking at seven to 10 years before luxury can get back to where it used to be," says Bjorn Hanson, an associate professor of lodging at New York University. Mr. Sillerman also has problems in Las Vegas, where one of his companies bought 18 acres on the Strip to build a casino-hotel. The project never got started, its $475 million mortgage is in default, and the land is slated to be auctioned as part of a prepackaged bankruptcy filing. Sand Castles View Interactive Construction of resorts across the Caribbean has stalled due to financing troubles and anemic condo sales. Prior to diving into the hotel industry, Mr. Sillerman had a sterling track record building businesses and selling them. A slender, balding 61-year-old with a thick mustache, he speaks in a halting rasp due to a battle with cancer in 2001. Mr. Sillerman, a New York native, started buying radio stations in the 1970s, teaming up on some deals with disc jockey "Cousin Brucie" Morrow. Over the next two decades, he bought many radio and television stations. In 1998, he sold his 120-station company, SFX Broadcasting, to Capstar Broadcasting Corp. for $1.2 billion. "It's hard to script anything that went better than SFX Broadcasting," he says.

— wealthy hotel investors  

  • Save this Post to Scrapbook

Leave a Reply

Your email address will not be published. Required fields are marked *