Marriott has decided to keep Renaissance St. Croix Carambola Beach Resort under its flag while the Government Employee Retirement System finishes bringing all rooms up to Marriott's par, helping to preserve the property's future sale value, GERS officials told a Senate panel Wednesday.
GERS owns Renaissance St. Croix Carambola Beach Resort after its previous owners defaulted on a $15 million GERS loan in May (See related link below).
In late 2009, GERS loaned Carambola $15 million on a 10-year note. GERS disbursed $8.5 million of that loan directly to Carambola's creditors and another $3 million to Carambola for the renovation of its rooms for a rough total of about $11.5 million, GERS Administrator Austin Nibbs told the Senate Government Operations Committee.
GERS received about $1.9 million in interest payments, he said. That money came from a portion of the loan that was held in reserve, he said.
The resort worked on the rooms but struggled to pay the loan, said GERS Governing Board Chairman Raymond James. "Unfortunately the economy went south at the same time, so they were unable to pay the interest payment on the loan of about $63,000 per month," James said.
GERS modified the loan in December, reducing its interest rate from 10.25 percent to 6.3 percent, but to no avail, and after several missed interest payments, GERS foreclosed May 11.
While poor economic conditions are making the hotel difficult to operate profitably now, once all the rooms are ready, Carambola will be better positioned to profit as conditions improve, Nibbs and James both testified.
Currently 102 of the resort's 154 rooms have been refurbished to Marriott standards, and 28-30 rooms still need major work, James said.
Marriott decided to keep its relationship with the resort because it believed GERS would invest and improve it, he said.
"So long as we are committed to refurbish the rooms, Marriott will continue to maintain its flag over Carambola," James said. "We think it is important because we think it will affect the sale price," he continued.
The alternative to refurbishing and selling the hotel as an ongoing business would be to allow it to close, which would eliminate 100 jobs and 154 hotel rooms from the island, James said.
Committee chairwoman Alicia "Chucky" Hansen asked whether the foreclosure had a negative impact on GERS finances.
"We issued a loan and they have not paid it back, so the answer is yea, it is negative," James said. GERS has received a number of inquiries about the property, suggesting it would not linger on the market, but it will fetch more once renovations are done, he said.
James said the hotel has had to turn away large parties because it did not have enough rooms that met Marriott standards, but will be able to book such parties once the rooms are done, enabling it to generate more revenue.
"Once we get to 154 rooms fully at standard we will be a much more sought after product," James said. "For instance, we may get $15 to $16 million right now, but ... it may sell at $27-28 million once it is complete. It is a negative, but at the end of the day, two or three years out, we will get the money back," James said.
No votes were taken at the information gathering hearing.