The 277-room Four Seasons had been subject to foreclosure since purposely defaulting on its two-year-old, $90-million CMBS loan for the Four Seasons earlier this year, with hope of renegotiating the debt with the special servicer, LNR Property Corp. A GlobeSt.com report at the time said that the hotel, once valued at $135 million, was worth less than was owed on it.

The restructuring of the Four Seasons loan has broader implications for the hotel market as well as for troubled CMBS loans in general, according to Alan Reay, founder and president of Atlas Hospitality Group in Irvine. "What this is telling us, as we've seen with other trophy assets, is that investors are willing to value these deals on pretty rosy projections," Reay tells GlobeSt.com.

The deal illustrates that, "Number one, there is money out there and number two, buyers are willing to pay a premium, based on today's values," Reay adds. The deal also marks one of the very few hotel CMBS loans to be restructured after going into default, Reay points out.

Until recently, about the only way that CMBS borrowers could get special servicers to negotiate with them was to stop payment, as Millennium did, Reay explains. In May 2009, Millennium Partners "strategically withheld payment of debt service," the company said, in order to prod the debt holders into restructuring discussions. Reay says that since then, the rules of the game have changed in that "Now, in order to get into special servicing, you can send them a letter saying that you plan to go into default, which will start your discussions on renegotiating the loan."

Christopher M. Jeffries, Millennium Partners founding principal, said in a prepared statement that, "Being able to restructure the debt on a luxury hotel property in the current economic climate is a rare and significant accomplishment." He said that the restructuring, "reaffirms our commitment to the Four Seasons brand and to the City of San Francisco, and marks what we believe is a turning point in the luxury hotel marketplace."

Millennium's negotiations with the special servicer pertained only to the debt on the Four Seasons Hotel San Francisco, which is owned independently of other Millennium properties. Millennium founding principal Phillip Aarons pointed out that the company's request for restructuring "was consistent with similar actions being taken by hotel owners nationwide in response to economic conditions."

The Four Seasons in San Francisco was opened in 2001 by a development team that included Millennium Partners. Called the Four Seasons Hotel & Residences, the property includes the 277-room Four Seasons Hotel, the sold-out Four Seasons Residences, the 100,000-square-foot Sports Club/LA and retail space.

 Reay of Atlas Hospitality Group points out that CMBS hotel loans that are in default―as well as CMBS loans on other product types―raise the question of what will happen to the special servicers themselves. As a GlobeSt.com report noted recently, LNR is facing its own distress and its fate remains to be seen.