Sheraton Newport Beach Hotel Files for Bankuptcy, Is Expected to Be Sold
The Sheraton Newport Beach Hotel has filed for bankruptcy protection and “most likely” will be put up for sale, an executive with the hotel’s parent company said Wednesday.
The hotel, located near John Wayne Airport, sought protection from creditors under Chapter 11 of the federal Bankruptcy Code 11 days ago in U.S. Bankruptcy Court in Boston. The filing was one of five bankruptcy petitions filed by Bay Financial Corp. of Boston and its subsidiaries.
Bay Financial, a publicly traded firm that owns, develops and operates income-producing real estate properties nationwide, sought court protection in response to an involuntary petition filed earlier this month by five banks that are its biggest creditors.
Gerald E. Wilson, vice president and secretary of Bay Financial, said one option in developing a reorganization plan is to sell the Sheraton Newport. “Most likely it’s something we’d want to sell. . . . No question about it--a possible sale is one of the alternatives,” he said.
In fact, the 340-room hotel was nearly sold in early fall to an undisclosed buyer for $28.5 million, according to documents filed with the SEC, but that deal fell through.
The 15-year-old Sheraton Newport--owned by a joint venture that is a Bay Financial subsidiary--apparently had been a drain on Bay Financial for some time. According to documents filed June 30 with the Securities and Exchange Commission, the Newport Beach hotel was “non-income-producing.”
In an interview Wednesday, the hotel’s general manager, Jeffrey Morse, said the Sheraton Newport had not been generating enough revenue to cover secondary financing for the past two to three years.
Hotel industry experts and company executives blamed the Sheraton Newport’s problems on the glut of hotel properties in the airport area. From 1984 to the end of 1988, the number of rooms in the area more than doubled, going from 4,023 to 8,192, according to Pannell Kerr Forster, an Irvine accounting and consulting firm specializing in the hotel industry.
With roughly 1,000 rooms entering the market each year, “it’s been very competitive,” said Sandra Louvier, a hotel consulting specialist with Laventhol & Horwath, hotel consulting specialists in Costa Mesa.
“The phenomenal influx of supply has made occupancy (in the area) hover in the range of 61 to 65%,” Louvier said. The result has been that hotel rates have become fiercely competitive, she added.
Morse, the Sheraton’s manager, estimated that the number of first-class hotels in the area has jumped 300% from 1983 through this year. New entrants have included the Irvine Hilton, the Marriott in Irvine, Le Meridien Hotel in Newport Beach, the Embassy Suites in Irvine and the Red Lion Inn in Costa Mesa.
The result, according to Morse, is that average rates have remained relatively flat for several years while expenses continue to climb. “We were faced with more and more hotels coming into the market--and to get their share, many of them were cutting their rates. . . . So rates haven’t increased as much as we’d like.”
The average rate at the Sheraton this year is expected to be $76.55--down slightly from $77.80 last year and $79.14 in 1987, said Wasim Kazi, the hotel’s controller. Occupancy levels, meanwhile, also have remained flat. The hotel projects it will end this year with 66.9% occupancy, barely up from 65.2% last year and 66.5% two years ago, according to Kazi.
HOTEL CAPACITY
The number of hotels and rooms in the John Wayne Airport area has more than doubled in the past five years. 1984: 4,023 rooms; 1989 (projected): 8,598
Note: Number of hotels and rooms represents total number as of Dec. 31 each year.
Source: Pannell Kerr Forster / Los Angeles Times
AIRPORT AREA LODGING MARKET Occupancy levels and average room rates have declined 7% and 4%, respectively, since 1984.
Year Occupancy Average Room Rate 1984 70.6% $77.30 1985 65.2 76.30 1986 60.3 72.00 1987 62.7 71.70 1988 63.4 74.20 1988* 65.5 74.60 1989* 65.5 74.80
* Through September
Source: Pannell Kerr Forster
