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Daytona Hilton Facing Loan Challenges

Posted in East Volusia - December 22, 2011 - by Tom Knox, Hilary Lehman, Andrew Gant


DAYTONA BEACH -- The Hilton Daytona Beach Oceanfront Resort soon may not be able to make payments on its $94.7 million loan and is working with a special servicer on a strategy, according to Fitch Ratings, a global rating agency.

Among the options for the area's largest hotel are a loan modification, forgiveness or foreclosure on the property, said Mary MacNeill, managing director of Fitch, which recently issued a report that included the Hilton's troubles.

A foreclosure seems unlikely, MacNeill said, because the 744-room Hilton is cooperating with the special servicer to come up with a resolution.

"This shouldn't affect the operations of the property," MacNeill said Wednesday, adding that the hotel was deemed in "imminent default" in October. "Just being in special (servicing) doesn't mean they can't operate. They're still paying ... It's just that they're in danger of stopping paying because cash flow is light."

An official with General Electric Asset Management, which bought the hotel in 2007 for an undisclosed amount, declined to comment Wednesday. Rich Larkin, general manager of the Hilton, and Doug Daniels, the hotel's attorney, also declined comment.

Tourism and Volusia County officials say they're hopeful the hotel will survive, and one expressed concern that the hotel's financial situation could affect plans to revitalize the beachside near the Ocean Center and expand the county's convention business.

County Chair Frank Bruno, a leading champion of Volusia's expanded Ocean Center and efforts to increase convention traffic there, said he's been aware of the Hilton's struggles since the beginning of the year -- "and it's been very, very, very much on our minds."

"I'm very much concerned about the whole e-zone and what we're trying to do with the city of Daytona Beach, and even trying to bring in another convention hotel," Bruno said. "Surely this is very concerning, and I hope that they're able to survive the whole thing."

Information about the loan problems isn't public record but was disclosed by Fitch in a report late last week that downgraded part of the Morgan Stanley Capital I Trust because of expected losses on the loans in special servicing. The report named the Hilton as causing the third-highest loss after loans to hotels in Columbia, S.C., and Addison, Texas.

"There are a lot of hotels in imminent default lately just because of the economy in general," said the Fitch's MacNeill. "Some of the hotels are starting to perform better, but not all."

Paul Breslin, managing partner for suburban Atlanta-based Panther Hospitality, a consulting and development firm, and executive in residence for lodging at Georgia State University, agreed and said it's too soon to sound the alarm about the Hilton. Breslin has done consulting work in Daytona Beach and knows the area well. The Hilton's high name recognition and location across from the Ocean Center convention hall helps.

"There are a lot of hotels in trouble," he said. "A better way to look at it is a restructuring, but it's probably something worth watching."

Breslin said "seedy" beachside hotels and the lack of a director at the city's Convention and Visitors Bureau have hampered the hotel, and he expects the Hilton to turn around.

In recent months, the Hilton's general manager Larkin told The News-Journal that business has been up-and-down and he has complained about the lack of the area's ability to attract sustained group business. Daniels, the hotel's attorney, told The News-Journal editorial board in February, while discussing the need for the Ocean Center to bring in more convention business, that low room rates and inconsistent occupancy that have plagued the entire area were continuing to affect the Hilton.

"Redevelopment of Daytona Beach is going nowhere with the Hilton doing what it's doing," he said in February. "If in the summertime they're running rates of $80 a night to get business in, how are these other hotels going to make money?"

News about the hotel's financial challenges comes as local officials are developing plans to revitalize the beachside into an entertainment and restaurant-packed district, called the e-zone, and attract a second convention hotel to attract more convention business.

Bruno and private business leaders have been meeting with hotel companies across the country for most of the year -- in Miami, New York, Georgia and the Midwest -- hoping to lure another large-scale facility to the beachside. Although the Ocean Center itself is fully booked in January, the economy has hamstrung discussions about hotel development in Daytona Beach.

In September, Bruno and Daytona Beach Mayor Glenn Ritchey enlisted the private CEO Business Alliance and its partners to fund a $50,000 study on the feasibility of that prospect. The study's results are expected in January, but the Hilton's situation "creates more of a problem," Bruno said.

The Hilton and other partners chipped in $10,000 each for the study.

"We're doing that study to try to encourage another developer to come in and build a convention hotel," Bruno said, "... and it's just unfortunate that it's taking a while for us to really book up the Ocean Center, to make the surrounding area as profitable as we can get it. We'll continue to do that, there's no question about that. But it does make it difficult."

Bruno is still positive about the Hilton, though.

"I'm hoping they can work through this, and I'm hoping the economy turns around, for everyone's sake."

Mayor Glenn Ritchey said he believes the hotel will resolve the loan problems and its financial situation won't hurt the beachside development efforts.

"We're fully confident it'll have a successful resolution," Ritchey said. "It's more an indicator of the economy. All companies are trying to stay afloat. We have confidence the economy will turn."

Francis Purvey, marketing manager at The Shores Resort & Spa in Daytona Beach Shores and a member of the Halifax Area Advertising Authority, said that as someone who markets the destination in terms of tourism, he doesn't see the reputation of the area or the Hilton taking a hit. He added that the Hilton is in the middle of a $1.7 million renovation that could actually raise its reputation.

"In this particular case, nobody knows that this hotel is in any more financial difficulty or success than any other hotel," Purvey said. "In that sense, the challenge is not in the operating profits in the hotel, but in the overall structure of the debt."

Purvey noted that other successful and popular hotels, most recently Perry's Ocean Edge Resort, have had issues with their loans that weren't a result of doing poorly in business.

"If a hotel is having major financial difficulty and is not able to provide the services they've advertised for the guest, then that's an issue," he said. "If it's a financial and behind-the-scenes issue, and the hotel is providing the facilities and services that one would expect, then there is no challenge to the hotel or the destination's services and ratings."

The hotel at 100 N. Atlantic Ave. was first established in 1989 as the Daytona Beach Marriott. Five years later, the hotel's owner defaulted on its mortgage and the hotel was sold to St. Louis-based HBE Corp. in 1995 for $23 million. It became the Adam's Mark.

In 2002, the hotel added 310 rooms in a $53 million expansion. It changed hands again a year later when Pyramid Hotel Group of Boston and Morgan Stanley Real Estate bought it for about $54 million.

In 2005, the property re-opened after a brief hurricane-related closure in 2004 as the Hilton Daytona Beach Oceanfront Resort. GE bought the property in 2007 for an undisclosed amount.