The Grand Wailea Resort Hotel & Spa in Hawaii, The Club at PGA West in California and three other luxury resorts filed for bankruptcy after lenders including Paulson & Co., one of the world’s biggest hedge funds, seized them from Morgan Stanley’s real estate funds.

The five resorts had $2.2 billion in assets and $1.9 billion in debt as of Nov. 30, according to Chapter 11 papers filed today in U.S. Bankruptcy Court in Manhattan. The lending group, which consists of Paulson, Winthrop Realty Trust and Capital Trust Inc., said it will restructure the debt and keep the hotels operating to take advantage of a predicted turnaround in the luxury market.

“We and our partners are excited to be owners of some of the world’s most desirable resorts and look forward to providing new sponsorship to maximize the value of these irreplaceable assets,” Michael Barr, a portfolio manager at New York-based Paulson, which has $36 billion of assets under management, said in a statement.

Paulson is also a co-investor with Winthrop Realty Trust and Capital Trust Inc. in three other properties that didn’t file for bankruptcy. The group’s joint venture, CNL-AB LLC, acquired the eight resorts in a foreclosure auction on Jan. 28. They held junior debt that helped finance Morgan Stanley’s 2007 purchase of CNL Hotels & Resorts Inc., positioning them to foreclose when Morgan Stanley defaulted.

Morgan Stanley bought the hotels “at the peak of the market,” Dan Kamensky, a Paulson partner, said in a court filing. The properties have struggled since then because of “reduced business and consumer spending, higher fuel prices, increased unemployment, and a severe decline in business and personal travel,” he said.
The Paulson group put the resorts in bankruptcy after failing to reach an agreement on a debt extension with trusts overseeing a securitized mortgage on them. A $1 billion mortgage backed by five of the former CNL properties, and $500 million of additional debt, matured today.

The Paulson and Winthrop group will need approval from other lenders to restructure the debt, said Harris Trifon, an analyst for Deutsche Bank Securities Inc. in New York. Midland Loan Services, a unit of Pittsburgh-based PNC Financial Services Group Inc., is the special servicer for the loans that matured today.
“Over the last few weeks, holders of the mezzanine debt have battled for control of the five properties,” Trifon wrote in a report yesterday. Secured-debt holders probably will be fully repaid and the mortgage loan likely will be extended two years once it is restructured, he said.

MSR Resort Golf Course LLC, also known as PGA West & Citrus Club, listed more than $1 billion in both debts and assets and seeks to be the lead case for 30 units in bankruptcy. The property in La Quinta, California, has six golf courses, three club houses, and a health and racquet club, according to its website.
The Grand Wailea, a Waldorf Astoria resort in Maui, Hawaii, situated on 40 acres along Wailea beach with 780 guest rooms, makes up 42 percent of the mortgage collateral, Trifon said.
Other properties included in the filing are the Doral Golf Resort & Spa in Miami; the Claremont Resort & Spa in Berkeley, California; and the Arizona Biltmore Resort & Spa in Phoenix. Together, the five resorts have 14 separate golf courses, more than 35 food and beverage outlets, and more than 432,000 square feet (40,134 square meters) of meeting space in the U.S., court papers show.
Paulson Loan
The three properties that didn’t file for bankruptcy are controlled by Capital Trust. The JW Marriott Grand Lakes and Ritz-Carlton Grande Lakes, both in Orlando, Florida, and the JW Marriott Desert Ridge Resort in Phoenix don’t face maturity on their debt until May 2012.
Paulson affiliates will fund operations of the bankrupt hotels with a $30 million loan that would be junior to the mortgage liens while the lender group pursues more financing, Kamensky said. Because only a few days separated the Jan. 28 foreclosure from today’s debt maturity, the property owners didn’t have time to negotiate the usual so-called debtor-in- possession loan that funds operations in bankruptcy, he said.
Morgan Stanley, the New York-based owner of the world’s largest brokerage, financed the CNL acquisition with $1.5 billion of senior debt, $1 billion of mezzanine debt and $800 million of corporate debt, which was previously restructured.
U.S. Bankruptcy Judge Sean H. Lane was assigned MSR’s bankruptcy case, filed by the law firm Kirkland & Ellis LLP.
The case is In re MSR Resort Golf Course LLC, 11-10372, U.S. Bankruptcy Court, Southern District of New York (Manhattan).