Morgans' Clift Hotel Suffers With the Rest

Its only San Francisco property, the Clift Hotel's average occupancy rate fell nearly 1,160 basis points to 65.1% in the second quarter from 77% in the same 2008 period. The average daily room rate also fell sharply, dipping 29.1% to $183.21 from $258.42 in the same 2008 period. Revenue per available room plummeted by 39.8% to $119.82 from $198.98 a year earlier.

Overall hotel revenue from the Clift in the second quarter fell 36% to $6.85 million from $10.7 million in the same 2008 period. Room revenue fell by 39% to $4 million from $6.57 million. Earnings before interest, taxes, depreciation and amortization fell 114% to a $260,000 loss from a $1.9 million gain in the comparable year-earlier period.

Through the first half of the year, average occupancy is down 20.2% down 1,480 basis points to 58.6% from 73.4% in the first half of 2008 while ADR is off 24.1% to $199.14 from $262.47.

Built in 1915, the Clift is a 17-story, full-service luxury hotel with approximately 9,000 square feet of meeting space, a fitness center, a business center, and the historic Redwood Room, which was once touted as "the best hotel bar in the country" by Conde Nast Traveler's Gold List.

Ian Schrager Hotels [now Morgans Hotel Group] acquired the Clift in 1999 with an $80-million loan from DLJ Mortgage Capital Inc. subsidiary Column Financial. The loan included $25 million for renovations. Ian Schrager Hotels had been operating the property since Apollo Realty Advisors bought control of the property from Four Seasons in December 1996.

The loan matured in July 2002. The MHG affiliate that owned the hotel, Clift Holdings, was given a one-year extension wherein it was expected to refinance the debt. A year later, when it hadn't done so, GMAC, as special servicer, accelerated the loan to force the issue. Clift Holdings then filed for bankruptcy, prompting GMAC to engage Ackman-Ziff to sell the defaulted note out of the DLJ Trust. It was sold to Black Diamond Capital, a Connecticut-based hedge/opportunity fund.

In October 2004, as part of the hotel's emergence from Chapter 11 bankruptcy, Morgans Hotel Group sold the hotel to affiliates of pension fund advisor Divco West Properties for $71 million, paid off creditors and then leased it back for a 99-year lease term. The lease is accounted for as a financing with a balance of $82.4 million and an interest rate of 9.6% as of the end of June. The lease payments are $6 million per year through October 2014, with inflationary increases at five-year intervals beginning at that time.

"From our vantage point, this [Ch. 11] filing should have never occurred," MHG chief executive Ian Schrager said in a prepared statement back in 2004. "Although the Clift had financing in place to refinance 100% of its debt, we were not able to obtain agreement from all of the hotel's many and diverse bondholders in a timely manner. Accordingly, in order to facilitate the refinancing, we had no choice but to take this action."