Bankrupt La Paloma keeps going

Operations at the resort, 3800 E. Sunrise Drive, and its country club will continue on normally, though, as the owners work with lenders to reorganize the debt.

"It's business as usual for us," said Bill Petrella, the resort's general manager.

Meanwhile, resort operators across Tucson said that while luxury travel has slowed in recent years and competition has become increasingly intense, there are indicators of improvement. In the long run, restructuring the debt at La Paloma will help stabilize the industry here, they said.

"It's probably just a bump for them," said Brian Johnson, the managing director of Loews Ventana Canyon. "It's not a bump anyone wanted to deal with, but it's still just a bump."

Transwest Partners/NCH Corp., which owns the Tucson property and The Westin Hilton Head in South Carolina, filed for Chapter 11, or reorganization, bankruptcy under its affiliates to free up cash to modernize the resort and to ensure its long-term viability, said attorney Kasey Nye.

The property owners have struggled to make mortgage payments on the two resorts. In an October report, credit-rating agency Realpoint LLC said Transwest was more than 90 days delinquent on its loans.

It's total mortgage-loan amount was $240.5 million, Realpoint said in the report.

An impending foreclosure was a factor in the bankruptcy filing, Nye said.

"The lenders were moving forward with a liquidation scenario," Nye said. In one bankruptcy filing, Transwest Tucson Property LLC lists its assets between $50 million and $100 million and its liabilities between $100 million and $500 million.

Transwest's financial struggle stems in part from the company's acquisition of the Westin portfolio in 2007, a time when property values were high.

"They have a high amount of mortgage debt," Nye said. "The current operations - while profitable from an operations perspective - can't support those mortgage payments."

As such, the ownership group is looking for ways to bring more money to the table, Nye said. He wouldn't mention whether any specific investors had been found other than to say the group had been talking with several potential partners.

The JW Marriott Starr Pass Resort & Spa, which was financed and built when property values peaked, is in a similar situation. Starr Pass is delinquent on $165 million in mortgages, according to Realpoint. The resort, owned by Signature Properties International, has been working with its lenders to restructure its debt.

The property continues to struggle as a result of the economic downturn plaguing the hospitality sector, Realpoint said in its report.

The recession, a decrease in business travel and Arizona's politically charged anti-illegal-immigration law have added to the challenges faced by Tucson-area resorts, said Johnson, of Loews Ventana Canyon.

Luxury properties in the Phoenix area have also cut their rates and become more competitive with the ones in Southern Arizona. Loews, though, has had the same owner for more than 20 years, which adds to its stability, Johnson said.

Will Conroy, president of the Arizona Inn, said he started to see a decrease in visitors in the second half of 2008.

"We really started to see less people coming through, and 2009 was substantially off," Conroy said. "We're up in 2010, but it's not where it was."

The midtown hotel doesn't rely on convention business as much other luxury properties in Tucson and didn't see as many fluctuations in price as the market grew competitive, Conroy said. There are some signs that conditions will improve in the future, though travelers recently haven't been booking stays in hotels as far in advance as they used to, Conroy said.

There are signs of recovery in business travel, and conditions have been getting better in large cities, which tend to recover first, Johnson said. The Westin La Paloma is likely to thrive in the future, he said. "The Westin is a great property and a mainstay of our community," said Johnson.

Contact reporter Dale Quinn at dquinn@azstarnet.com or 573-4197.