Montelucia To Foreclose, Others To Follow

Irvine, CA-based Crown Realty & Development Corp. began construction on the Montelucia at 4949 E. Lincoln, the site of the former La Posada Resort. The Montelucia opened in fall 2008 in this area adjacent to Scottsdale, AZ. But according to a report in Business Real Estate Weekly of Arizona, the owners are having troubles with a $185 million mortgage held by Eurohypo AG of Germany.

The news of Montelucia's fate follows weeks after an announcement that the W Hotel Scottsdale was going into foreclosure. Data analyst Zach Bowers of Mesa, AZ-based Ion Data, says neither the W nor Montelucia will be the last luxury hospitality properties headed to foreclosure. "Phoenix is leading the nation in the drop of occupancy of hotels," Bowers tells GlobeSt.com. "The demand just isn't there for the rooms."

Jay Snyder with Snyder Nationwide Real Estate in Scottsdale, AZ is blunter. "We're probably the worst hotel market in the top 25 MSAs," he comments. "This was a bad case of timing. You have the economy taking a dive, and brand new product coming on the market."

Snyder and Bowers go on to say that adding to the problem is the developers started their projects in 2006, when the market was booming and right before the slide. "They got their funding for the projects when things were overvalued. There are similar projects out there like these, and I don't think these will be the last to foreclose," Bowers comments.

Snyder agrees, adding that some of the newer hospitality projects have loans coming due at the end of 2009, and well into 2010 and 2011. Unless the credit markets thaw, refinancing could be unavailable. As a result, "when we talk to people who want to sell, we're advising them not to," Snyder explains. "If they're insistent, we tell them to plan on providing the financing."

But Snyder adds that not all resorts will suffer the same fate as the W and Montelucia. "The area has lots of older resorts that are adequately leveraged at a much lower basis than Montelucia and W," he remarks. "Those are the ones that should hang on until this turns around."