Hooters Hotel management agrees to auction
Top management at the Hooters Hotel has shifted gears and agreed to auction the property rather than try to find an investor to bail out current owners.
At a Tuesday hearing in U.S. Bankruptcy Court, Hooters management and largest creditor Canyon Capital Realty Advisors agreed to a schedule leading to a sale in February, and then place a reorganization plan in front of the court a few weeks later.
As recently as two months ago, Hooters advisers and attorneys said their top priority was pursuing what is called a new value plan, under which an outsider would put more money into the property in return for an ownership share. But experts retained by Canyon Capital, a Los Angeles-based investment firm, doubted anybody would bite, and advocated an outright sale.
Hooters adviser Matthew Sodl, managing partner of the investment firm Innovation Capital in El Segundo, Calif., said he had found “very active interest” in his quest for buyers. He declined to give any details.
This could lead to picking one potential buyer, or “stalking horse bidder” as a starting point, then opening the sale to others at an in-court auction. The exact process has not been defined, Sodl said.
“There is no question that no one out there will pay in excess of $175 million,” Hooters attorney Gerald Gordon said, referring to the total debt officially listed at $176.6 million. “But there are buyers prepared to step up for somewhat less.”
Veteran gaming property broker John Knott, an executive vice president of CB Richard Ellis, estimated a sale price of $50 million to $80 million in a written statement for Canyon Capital on
Nov. 1. He termed $70 million “achievable” for the 696-room off-Strip resort. But he estimates the property will need as much as $50 million in renovations to be competitive in a market in which thousands of new or renovated rooms have come on line in the past three years.
In the three months through Oct. 31, court documents show, the resort posted net revenues of $11.3 million and a $111,000 loss. No comparable numbers for last year were disclosed.
Canyon Capital has not discussed what it will take to cede the keys to an outsider. It holds almost all the debt, either through a $14.5 million loan it made six years ago to help finance the purchase and renovation of what was then the San Remo hotel, or buying the rest at 22 cents on the dollar, by Hooters’ counting. As such, Canyon Capital could bid its debt at the auction and likely top any rival without adding another dollar.
Sodl believes Canyon Capital might be willing to take less from an outsider because it could still walk away with a substantial profit.
Before the sale proceeds, Canyon Capital wants have the amount of debt set because of a new state law limiting how much a real estate lender can collect after a foreclosure. The law states that a lender who bought debt at a discount cannot collect a deficiency claim from former owners based on the face amount. For example, if an investor bought a $10 million mortgage for
$3 million, then the deficiency claim would be based on the lower number.
Contact reporter Tim O’Reiley at
toreiley@reviewjournal.com or 702-387-5290.
