SEPTEMBER 2, 2009
By KRIS HUDSON and ANTON TROIANOVSKI, Wall Street Journal
Maui Prince Hotel is the target of foreclosure proceedings and the cancellation of a management contract just two years after a Morgan Stanley real-estate fund and local developers bought it for $575 million.
Mortgage-holders led by Wells Fargo Bank sued last week to foreclose on the 310-room resort, following the owners' failure to pay the resort's $192.5 million mortgage when it came due in July. The foreclosure threatens to wipe out the $227.5 million in mezzanine debt held by a UBS fund and the $250 million in equity that Morgan Stanley and its partners put into the property.
This week, Prince Resorts Hawaii, which stayed on as the resort's manager after selling it to the Morgan Stanley group in 2007, disclosed it will stop managing the resort Sept. 16 due to a shortage of funds from the resort's owners and lenders. "We do not have funding for payroll, but we are getting some funding for our accounts payable and basic operating expenses," said Donn Takahashi, president of Prince Resorts Hawaii, which manages three other resorts on the islands. "We cannot operate a top-notch resort in this fashion."
With Prince Resorts leaving the Maui property, Wells Fargo and other lenders have asked a Hawaii state judge to appoint a receiver, who will then hire a new management company and administer an escrow account for covering the hotel's costs. "If they're valid debts, the receiver will pay them," attorney Barry Sullivan said.
In addition to its hotel, the resort includes two golf courses and additional land for residential development.
Morgan Stanley's real-estate arm has taken a beating this year -- as have other groups that make property investments on behalf of pension funds and other big investors. Morgan Stanley Real Estate Fund V, which bought the Maui Prince Hotel, also made a big bet on Crescent Resources LLC -- a Charlotte, N.C., developer that filed for bankruptcy-court protection in June.
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