The future Ritz-Carlton resort in Rancho Mirage, which is slated to open no later than June 2011, will go up for trustee's sale next month so that any liens can be cleared before a new lender can move forward with finishing the project.

GENLB-Rancho LLC, a partnership led by the Miami-based hospitality investment firm Gencom Group, bought The Lodge property at 68-900 Frank Sinatra Drive in 2005.

The hotel closed in August 2006 in preparation for a renovation and expansion project valued at more than $500 million at the time.

The project was 80 percent complete when Gencom's lender, Lehman Brothers Holdings Inc., filed for bankruptcy in 2008. Work ceased soon after, and Gencom began its search for a new lender.

Emily Hemphill, an attorney representing Gencom, told city officials in February that a company from Argentina was expected to contribute more than $50 million in equity to the project. She also said the property would be conveyed to a new entity, and that the equity investor would be the primary owner.

As reported on mydesert.com Tuesday, the trustee's sale, or auction, is a necessary step the note-holder must take in order to sever any liens against the property, according to city officials and Hemphill.

The auction was supposed to take place Thursday but was delayed at the request of the beneficiary. Hemphill did not know the reason for the delay.

A new date has been set for July 8, with the estimated debt on the property set at $312 million. Bids may include all or part of that amount, according to the notice of trustee's sale.

Curt Watts, director of economic development for the city of Rancho Mirage, said it is a “painfully slow process” parties must go through to position themselves for moving forward with the project.

He said construction was scheduled to resume in October or November, but he's unsure if that will happen with the delay with the trustee's sale. The hotel must open by June 2011 to be eligible for transient occupancy tax rebates and other financial assistance from the city.

The Ritz-Carlton in Rancho Mirage on Sept. 23, 2008. The future Ritz-Carlton resort in Rancho Mirage, which is slated to open no later than June 2011, will go up for trustee's sale next month so any liens can be cleared before a new lender can move forward with finishing the project. (Crystal Chatham Desert Sun file photo)

CITY'S FINANCIAL ASSISTANCE UNAFFECTED

The financial assistance package the city of Rancho Mirage has worked out with the owner of the future Ritz-Carlton property will not be affected by the trustee's sale scheduled for July 8.

The lending agreement only takes effect when renovations are complete and the hotel reopens for business, said Curt Watts, director of economic development.

Before The Lodge ceased operations in August 2006, the hotel generated more than $1 million in transient occupancy taxes for the city — or about 17 percent of the annual bed tax collections, according to city records. Because the city is motivated to begin receiving those taxes again, officials have structured an agreement with the property owner that would provide additional revenues in the early years for Ritz operations.

“They don't get a dime from us until they actually finish construction and the hotel reopens,” Watts said.

“You go get the money from someone else. We're giving you a source of revenue to help make the payments on that loan.”

Here's how it works:

Transient occupancy tax rebates: Once the hotel reopens, the city of Rancho Mirage will keep the first $250,000 of TOT and then split 50-50 any amount above that with the owner. The rebate would be capped at $1 million annually and $10 million total. Condominium units, included in a second phase that has not started, would be eligible for TOT rebates as well.

Providing the rebates, Watts said, would give the owner a chance to qualify for larger loans from lenders. But all rebates would eventually have to be repaid to the city. Repayment would occur in one of three instances: by Jan. 1, 2029; when the project reaches an annual net operating income of $24 million or when the hotel site is sold in excess of $267 million.

Purchase of spa suites: The Ritz-Carlton project's first phase called for renovations of the hotel and construction of a spa facility with 18 suites. In order to provide “up-front cash” to the owner, the city was willing to loan up to $5 million, Watts said. In order to have some collateral, the city is willing to purchase four spa suite units for that price. Those units would then be leased back to the hotel — at a cost to the hotel owner of $200,000 for five years and $250,000 for two more years — and placed into the rental pool.

At the end of the seven-year period, the owner would then be required to buy all four units back from Rancho Mirage at the same purchase price the city paid. “Effectively it's a loan of $5 million at a 4 percent interest rate for five years and a 5 percent interest rate for two years,” Watts said, referring to the leasing prices above.