By MIKE SPECTOR and KRIS HUDSON for wsj.com
Owners of Viceroy Plan Deal That Would Transfer Caribbean Property to Real-Estate Mogul
Viceroy Hotel Group
The 166-room Viceroy plans to file for bankruptcy protection and then ask a U.S. judge to approve an auction in Anguilla.
The owners of the Viceroy resort on the Caribbean island of Anguilla are preparing to put the posh getaway into bankruptcy court in a deal that would hand the hotel suites and villas to real-estate mogul Barry Sternlicht's Starwood Capital, people familiar with the matter said.
The Viceroy, owned by a partnership of Viceroy Hotels & Resorts and Lubert-Adler Real Estate Funds, plans to file for Chapter 11 bankruptcy protection in Delaware as soon as Thursday, these people said. Starwood, the resort's largest secured creditor, would then aim to take over the Viceroy, which has hosted celebrities such as Paul McCartney, Ellen DeGeneres, John Mayer and Sandra Bullock.
The Viceroy's current owners got a $358 million mortgage from Citigroup Inc. in 2006 with a goal of attracting rich vacationers to luxurious amenities that included personal pools for each villa. The developers described it as an "exquisite rendition of the residential resort concept" on Anguilla.
But bad weather, labor difficulties and other construction problems caused the first part of the Viceroy to open more than a year behind schedule, in August 2009. The delay, in turn, allowed many villa buyers to refuse to close their purchases. Now, the developers have a completed resort valued at less than the debt owed on it.
Enter Mr. Sternlicht, who has a plan to save the Viceroy through a complex maneuver that straddles both U.S. and Anguillan law. The laws of 36-square-mile Anguilla won't allow Starwood, which purchased the Viceroy's mortgage at a steep discount in October, to foreclose on the resort. Instead, the 166-room Viceroy plans to file for bankruptcy protection and then ask a U.S. judge to approve an auction in Anguilla, which will be open to all comers.
Viceroy Hotels would continue to manage the resort under Starwood's ownership, the people said, though the current owners' investments would likely be wiped out.
A deal by Mr. Sternlicht would add to his recent distressed real-estate acquisition spree, including the purchase of construction lender Corus Bankshares and its string of properties in cities from Los Angeles to Miami. His goal in Anguilla: grab the finished getaway on the cheap and dot the resort with improvements such as a business-meeting center and an expanded spa.
The resort's current owners spent $550 million to finish the project, leaving only modest improvement chores for Mr. Sternlicht.
In all, the buyers, most of them from the U.S., put down some $50 million in deposits since 2004 to purchase 68 of the Viceroy's 134 villas. Those deposits were spent on construction, a common practice in the Caribbean.
To spur buyers to close their long-idled purchases, Starwood plans to reduce prices on some of the units, many of which are outfitted in marble, overlooking the beach. The villas and condominiums were first sold at $600,000 to $6.5 million. Nightly rates for the resort's 32 hotel rooms range from $899 to $15,000, depending on the size of the suite and time of season.
Some buyers earlier decided they want out. At least three—New Jersey couple Gary and Florence Black and investor Michael Hirtenstein—sued in U.S. District Court in New York to negate their purchase contracts and recoup their deposits. Viceroy Hotels is contesting the lawsuits.
Buyers who wish to back out will join a pool of unsecured creditors, and would likely get only partial recoveries.
Mr. Sternlicht already has invested about $12 million into the property and obsessively monitored the resort. Just weeks before a sold-out period around Christmas, he purchased eight blenders that the resort's bar lacked. He also bought Kinects for Xbox 360 game consoles to install in rooms, and sent trainers to the island to teach yoga classes.
Law firm Akin Gump Strauss Hauer & Feld is advising Viceroy. DLA Piper is advising Starwood.
Write to Mike Spector at mike.spector@wsj.com and Kris Hudson at kris.hudson@wsj.com
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