by Karen Brune Mathis
Managing Editor
In the wake of the recession, at least seven Duval County hotel ownership groups, including three at the Beaches, filed for protection under bankruptcy laws during the first quarter of 2011.
Records show that the ownership groups filed under Chapter 11 in the U.S. Bankruptcy Court Middle District of Florida.
The filing allows them to continue doing business while reorganizing their debts under court protection.
Court records show that the hotel ownership groups at the Beaches that filed Chapter 11 since Jan. 1 were:
• Shivam Beach LLC, doing business as Holiday Inn Express - Jax Beach.
• Mayport Properties LLC, doing business as Best Western, along Mayport Road in Atlantic Beach.
• Shivam Neptune LLC, doing business as Days Inn Neptune Beach.
“This is a step to restructure and not close the doors,” said Sonny Bhikha, managing member of the group that owns the Holiday Inn Express in Jacksonville Beach.
“We haven’t laid anyone off. It’s business as usual. Everything is going as smoothly as possible,” Bhikha said Thursday.
Records show four other ownership groups in the county filing Chapter 11 were:
• Suvichar Corp., doing business as Holiday Inn Express Hotel & Suites, 11262 St. Augustine Road.
• First Coast Hospitality LLC, doing business as Candlewood Suites Hotel East Jacksonville, 2700 Jane St., off Merrill Road.
• Baymeadows Lodging Inc., doing business as Four Points by Sheraton Baymeadows Jacksonville.
• DURGAMA Inc., doing business as Holiday Inn - Baymeadows.
Attorney Jason Burgess, secretary of the Jacksonville Bankruptcy Bar Association, said there are reasons for the hotel Chapter 11 cases.
“The first and most important one is that the service industry is taking a huge hit economically. No one can afford to travel or go out to eat given the current state of the economy,” he said.
Burgess said people are fortunate to afford their current home, much less take a vacation.
Tampa lawyer Buddy Ford represents six of the ownership groups. He did not respond to a telephone call or email for comment and the service answering his phone said he would not be able to call Thursday.
Jacksonville lawyer Robert Heekin Jr., of Stutsman Thames & Markey, represents the other ownership group, Shivam Neptune LLC, doing business as Days Inn Neptune Beach.
“The recent uptick in Chapter 11 filings by the hotel community is directly attributable to the decrease in the amount of business and leisure travel here in the Jacksonville area, as well as the unprecedented drop in real estate values in the current recession,” said Heekin.
“While we see some signs of property values leveling off and business picking up, many of the loan agreements entered into just a few years ago are now difficult to service based on current cash flows,” Heekin said Thursday.
He also said that a rebound in occupancy rates over the past 12 months in the Jacksonville area have been accompanied by a decrease in the average room rate, which he said greatly reduces the margin available to hoteliers.
Chapter 11 reorganization allows the debtor to reduce or restructure its debt based on current market values and emerge as a more economically efficient business, Heekin explained.
“Generally speaking, Chapter 11 allows a debtor to continue its business operations and remain in possession of its property or facilities, while attempting to put forth a plan of reorganization which is acceptable to its creditors,” said Heekin.
Hotel industry observers said the travel business has been affected by the recession and each hotel ownership group likely had specific reasons for seeking bankruptcy protection.
“It is probably different for every single one, “ said Lyndsay Rossman, senior director of corporate communications for Visit Jacksonville, which promotes conventions and travel to Duval County.
It defines itself as the official travel information resource for the Jacksonville area.
Visit Jacksonville tracks about 160 Duval County hotels. Rossman said the recession affected the travel trade.
“Visitors were traveling on value, looking for the best price, so our hotels responded by slashing their prices,” she said.
“By doing so, they weren’t bringing in as much money. The revenue per available room was much lower.”
However, Rossman stressed that the hotels are open for business.
“They are still operating normally,” she said.
Rossman said the average daily hotel room rate in Duval County is low and when occupancy is not at 61 percent, “it is hard for hotels to make money.”
“It is very important to know that all of these hotels are operating as normal with the bankruptcy, so we are still promoting all of our hotel partners,” said Rossman.
Rates have been improving, she said. The average room rate in Duval County rose to $70.66 in February, up 1 percent from last year.
But that rate is well below the $86.05 average room rate at the peak (other than during the 2005 Super Bowl) in February 2008, before the recession took hold.
Also, while occupancy rose to 65.6 percent in February, that is down from the peaks of 72-75 percent in early 2007.
“It is very hard for hotels to be profitable when the revenue is lower,” said Rossman.
Jacksonville hotel industry veteran Fred Pozin explained that the industry is being squeezed.
He said limited-service hotels built in the past several years that were highly leveraged needed to maintain a 65-70 percent occupancy rate at $100 a night.
“Everything went south and the rate structure dropped to the $70-$80 range and occupancy fell to 45-50 percent,” he said.
“So there’s a gap,” he said.
Pozin owns the 150-room Ramada Mandarin Conference Center at San Jose Boulevard and Interstate 295.
Pozin is a past president of what is now the North Florida Hotel & Lodging Association, a past president of Visit Jacksonville and a member of the City Tourist Development Council.
“Our industry is not bouncing back,” he said. “It could take several yeas to get back to the optimal levels we were used to.”
Pozin also said that hotel properties built or bought by the same ownership group might experience a domino effect if they are leveraged against one another.
He also said that the costs of doing business are rising, including the prices of fuel, food and beverages.
Pozin posed an industry question. “How do I keep spinning the plates?”
Several of the hotels listed assets and liabilities and several also listed pending foreclosure actions.
Shivam Beach LLC, doing business as the Holiday Inn Express at 1101 Beach Blvd. in Jacksonville Beach, listed total assets of $7.4 million and liabilities of $11.24 million. It has 82 rooms.
The filing said a foreclosure action by General Electric Capital Corp. is pending in Circuit Court.
Baymeadows Lodging Inc., doing business as Four Points by Sheraton Baymeadows Jacksonville at 8520 Baymeadows Road, listed total assets of $3.88 million and total liabilities of $7.84 million.
The filing shows a pending foreclosure action by First Guaranty Bank and Trust in Circuit Court.
Mayport Properties LLC, doing business as Best Western at 2389 Mayport Road in Atlantic Beach, shows assets of $1.33 million and liabilities of $4.39 million.
It also shows a pending foreclosure by U.S. Bank National Association in Circuit Court.
DURGAMA Inc., doing business as Holiday Inn - Baymeadows at 9150 Baymeadows Road, listed total assets of $3.76 million and total liabilities of $12.27 million.
It showed a pending foreclosure action by First Southern Bank in Circuit Court.
Chapter 11 provides for an automatic stay in which judgments, collection activities, foreclosures and property repossessions are suspended and cannot be pursued by creditors on any claim arising before the filing of the petition, according to court information.
“The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor’s financial situation,” according to the administrative office of the U.S. Courts.
The debtor is required to present a repayment plan. If the plan is accepted by the creditors and subsequently approved by the U.S. Bankruptcy Court, the debtor is allowed to reorganize its financial or business affairs, according to the court.
Bankruptcies reached a record 66,618 filings last year in the Middle District, which includes 35 of the state’s 67 counties, including Jacksonville.
Bankruptcies soared as the economic recession lingered in hard-hit Florida.
Chapter 11 filings, which primarily are corporate reorganizations but also include individuals with large debts and assets, reached 777 last year. That was 20 percent above 2009 and more than three times the number in
2005.
“Successful reorganizations, such as the recent Amelia Island Company case, often result in significantly less ‘collateral damage’ to the creditor base as a whole than a straightforward liquidation,” said Heekin.
“Without bankruptcy protection, primary secured lenders would have the near absolute right to foreclose on their mortgages, to the detriment of other creditors,” he said.
“In addition, the community as a whole benefits from a successful reorganization through job retention, generation of tax revenues, and keeping property utilized rather than shuttered and vacant.”
Bhikha, also a member of the Tourist Development Council, said that business dropped, as did average rates, and if rates drop, revenues drop.
“What happened is business shifted,” he said. Bhikha said larger full-service hotels dropped their rates, making those hotels more affordable to visitors.
“We were searching for business where we couldn’t compete,” he said.
Bhikha said the larger hotels are doing well and raising rates now, but the smaller limited-service properties still face challenges.
“We spoiled the market now,” he said. “People are used to lower rates.”
Bhikha said he expects the reorganization to be completed in six to eight months, depending on the court process.
The Jacksonville area might have a few years before reaching average occupancy levels, according to Colliers PKF Hospitality Research.
The firm’s recent Hotel Horizons Report shows that the Jacksonville and Northeast Florida area is expected to return to average levels by 2013-14.
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