SAN FRANCISCO-The owner of the Clift Hotel here proposes to sell the 373-room asset for $71 million as part of a reorganization plan filed with US Bankruptcy Court last week. Most of the proceeds would be used to pay off about $67 million in securitized debt on the property, a source familiar with the reorganization tells hotel owner is an affiliate of Morgans Hotel Group, formerly known as Ian Schrager Hotels. As part of the reorganization plan, MHG would continue to operate the hotel under a 99-year leaseback agreement with the proposed new owner, affiliates of pension fund advisor Divco West Properties.Creditors have yet to formally accept or reject the plan, which proposes to pay off all creditors in full. The US Bankruptcy Court is expected to consider the plan in September. In a prepared statement, MHG chief executive Ian Schrager says the sale of the hotel will provide MHG with the funds necessary to make improvements to the property, “and preserves for us the upside we feel there is in the Clift from both an operational and, should we choose to pursue it, capital transaction.”Built in 1915, the Clift is a 17-story, full-service luxury hotel located in the heart of Union Square, San Francisco’s upscale shopping district. The property contains approximately 9,000 sf 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 is the founder of New York’s legendary Studio 54 disco. Ian Schrager Hotels acquired the Clift in 1999 with an $80-million loan from DLJ Mortgage Capital Inc. subsidiary Column Financial that was sourced by Sonnenblick-Goldman Company. 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.”This transaction was attractive due to the quality of the hotel and Ian Schrager Hotels’ track record of successfully renovating existing properties and generating superior operating performance,” Sonnenblick-Goldman managing directorThe loan matured in July 2002. The MHG affiliate that owns 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.

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