Harbor East developer acts to fix finances Patriot American retains Morgan Stanley to advise on debt

Still committed to hotel

'We intend to move forward with the Wyndham'

Commercial real estate

November 12, 1998|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Caught in a vise of continuing financial turmoil, the Dallas real estate firm working to develop the $134 million Wyndham Inner Harbor East hotel said yesterday that it has retained a New York investment bank to formulate a financial rescue of the company.

Patriot American Hospitality Inc. hired Morgan Stanley Dean Witter & Co. for advice on repaying $1.72 billion in debt. The move follows an ownership restructuring of the planned 31-story Wyndham.

Under a new ownership deal, John Paterakis Sr.'s H&S Properties Development Inc. and Stormont Trice Development Inc. of Atlanta will hold a larger stake in the 750-room Wyndham, the result of Patriot American's financial troubles.

The hotel also will be financed with $25 million less debt, said Don Trice, president of the Atlanta hotel company. "It's a reality of the financial markets today," Trice said.

Patriot American said it remains committed to the Wyndham, part of the $350 million Inner Harbor East development.

"Our plans have not changed," said Suzanne Cottraux, a Patriot American spokeswoman. "We still see Baltimore as a gateway city for us, and we intend to move forward with the Wyndham there."

But Patriot American has been buffeted in the past week by weaker than expected earnings that for the second time in the past year failed to meet Wall Street expectations. Those results caused investor panic and sent the company's stock price down several dollars in value this week alone. In the past year, the real estate investment trust's share price has plummeted 74 percent. It closed yesterday at $7.1875, down 93.75 cents.

Patriot American said Monday that it would raise $206.5 million through the sale of nine hotels -- including the Hunt Valley Embassy Suites -- and an interest in a management company it owns.

The company has told Wall Street analysts that it intends to curtail certain new development projects, excluding Baltimore.

"Patriot American is very dedicated to this hotel," Trice said. "They have told us it's an important strategic project for them, and that it's the only new project they intend to proceed with."

The Wyndham is scheduled to open in late 2000, even with the delays that the project has already encountered.

Michael Beatty, a H&S Properties Development vice president, said plans for the Wyndham are proceeding "full speed ahead," despite the problems Patriot American has encountered.

"We've spent $8 million so far," Beatty said. "For a project that people say is not going forward, we've put a lot of money into the ground. We are now working to clear and grade the site, and construction cranes are being installed today."

Beatty added that construction financing from NationsBank N.A. has all but been secured. "We're in the closing process of the loan," he said.

Beatty and Trice acknowledge that Patriot American's problems are serious, the result of aggressive spending fueled by debt and pledges of future stock sales. This year alone, the REIT has spent $3.2 billion to acquire Wyndham Hotel Co. and Interstate Hotel Co.

In all, Patriot American owns 486 hotels containing more than 105,000 rooms.

But with its stock price down and Wall Street clamming up on new hotel company financing, Patriot American is now scrambling to find other sources of capital and, through Morgan Stanley, assess its future in light of costly financial setbacks.

The company reportedly is in talks with Chase Manhattan Bank of New York to refinance $750 million in debt coming due early next year. Patriot American's Cottraux would say only that Morgan Stanley is "trying to navigate our way through some of these capital markets issues."

Said Janet Campbell, an analyst for Sutro & Co. in San Francisco: "Certainly, I would think in light of what they're going through that the Baltimore project would be re-evaluated. I'd say at this point it's not a slam-dunk, but I wouldn't go as far as to say they're going to cancel it. The company has indicated that what they have in their development pipeline they intend to go forward with."

Pub Date: 11/12/98

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