Iowa Hotel Operator Submits Only Offer for Sheraton

It looks like the Sheraton Hotel Newport Beach will sell for $29.4 million, as the deadline for other offers passed Thursday with no new ones forthcoming.

At that price the hotel is not much of a bargain, some brokers said, considering that it was on the block for nearly two years and that the owners once accepted an offer for $1 million less in an earlier deal that fell through.

The Sheraton and other hotels in the John Wayne Airport area have been struggling for several years with meager room occupancy rates.

And the 338-room Sheraton, some industry watchers said, may soon need an expensive gussying-up to remain competitive with nearby hotels.

“The buyer definitely paid retail,” one broker said.

The buyer is Iowa hotel operator Larken Inc. Larken, which runs a chain of nearly 80 hotels around the country--including Sheratons and Holiday Inns--couldn’t be reached for comment.

But the sale to Larken still must pass several hurdles, including approval by a federal bankruptcy court judge in Massachusetts.

The current owner, Boston’s troubled Bay Financial Corp., had been trying to unload the hotel even before the company filed for bankruptcy in November.

The Sheraton was one of the least of Bay Financial’s problems. The hotel is actually doing OK, by its own account ending last year with a 67% occupancy rate, which is about average for the airport area.

But the hotel was unable to make a profit and pay off $20.6 million in mortgages that Bay Financial had loaded it down with.

Bay Financial’s other real estate, though, was in even worse shape. The company put the Sheraton up for sale at $35 million to raise cash to hold off its lenders.

“The bankruptcy had nothing to do with the hotel,” said Robert Meyer, treasurer of publicly held Bay Financial. “It was our most salable asset.”

The bankruptcy judge had set Thursday as the deadline for offers on the hotel. Larken made the only offer. The judge will rule on whether to accept the deal in a hearing next week.

The Sheraton’s employees have become accustomed to the uncertainty that has been felt by other hotel staffs recently. The 293-room Radisson, under its old name, the Registry, filed for bankruptcy a couple of years ago and was bought by local investors for $26 million; the 435-room Le Meridien was sold to a Hong Kong investor for $48 million last year; and the Hyatt Newporter is up for sale while its owner, Columbia Savings & Loan, tries to dump its real estate holdings.

“It’s unsettling to the employees,” said Jeffrey Morse, general manager at the Sheraton. “But they’ve been going through this quite a while now, and they’re getting used to it.”

Hotel operators hope an expanded John Wayne Airport--now under construction--will solve their problems by bringing lots of new customers to the area.

Right now, however, Morse says that hotels and retailers in the area are seeing an ominous dip in sales. There are several possible explanations: The inconvenience of the airport construction--long over schedule--is keeping people away; the cutback in defense spending may be affecting business travel in that industry, or the public may be getting more frugal about leisure travel.

But the long-term outlook for hotels in the airport area is good, said one consultant, which means the Larken deal could make sense down the road.

“Hotels usually aren’t bought so much on what they’ve done in the past as what they’re expected to do in the future,” said Joanne Sobota, a hotel consultant for the accounting firm of Laventhol & Horwath.