The owners of San Francisco's Four Seasons Hotel said Wednesday they are no longer in default on a $90 million loan after joining forces with an investment partner who will take a significant ownership interest in the property.

 

Millennium Partners has teamed up with Westbrook Partners, a New York investment company, to pay off $35 million of its outstanding debt. As a result of the deal, Westbrook now own two-thirds of the property.

 

The agreement comes as San Francisco hotel occupancy rates are improving, but daily room rates continue to fall. Nonetheless, Millennium executives said they believe that the hotel is an asset whose value will increase over time.

 

"The Four Seasons has been a bellwether for San Francisco for luxury, and for the hotel to be in default was bad for the hotel industry and bad for the city," said Millennium Partners founder Christopher Jeffries.

 

Other so-called trophy hotels have sold in recent weeks, including the Helmsley Carlton House on Manhattan's Upper East Side, a 161-room deluxe location that went for $170 million.

 

Hotel industry analyst Alan Reay said recent sales of luxury hotels did not indicate a healthy hotel market, but more likely, unique properties. He noted that currently about 20 San Francisco hotels are in default, and that most of the Four Seasons hotels around the world are struggling because they offer luxury service at a high price, when the economy is still ailing.

 

"I think what we're probably seeing with the Four Seasons in San Francisco is a trophy property in a tremendous location and buyers are willing to pay a premium for those properties," Reay said.

 

Millennium Partners completed the downtown Millennium Tower condominium building in 2009 and owns other high-end properties in San Francisco and other large U.S. cities.

 

It opened the Four Seasons on Market Street in 2001. In July, the company said it was withholding payments to urge the servicer on the loan to negotiate a restructuring of the outstanding debt. The loan was originated by Morgan Stanley, according to Jeffries, but was bundled with other debt and sold to investors in the form of mortgage-backed securities. Defaults on such loans are typically placed with servicers, not the original lender.

 

Jeffries said that by July, the hotel market had swung from historic highs to projected annual operating losses of $10 million. Several other downtown office towers and hotels defaulted on payments at around the same time, providing clear evidence that loans on sky-high property prices during the real estate boom could not be covered by hotel rates and rents after the crash.

 

In 2009, hotel room rates in San Francisco and the nation suffered their biggest annual decline since the Great Depression.

 

San Francisco's average daily room prices fell nearly 16 percent from $190.12 in 2008 t0 $160.27 in 2009, according to research compiled by PKF Consulting, a hospitality industry research group.

 

In June, the average room rate was $134, the lowest it had been since 2005. For December, the average was even lower, $132.81. Average daily occupancy for 2009 was 75.5 percent, down 4.3 percent from 2008.

 

Four Seasons General Manager Doug Housley said occupancy has been improving at the hotel, but that daily average room rates had deteriorated.

 

In February 2009, occupancy at the Four Seasons was 52 percent, Housley said. In February 2010 that figure was 80 percent. March occupancy went from 60 percent in 2009 to an expected 72 percent this month. Meanwhile, average daily room rates have fallen $5o during the past year to about $300, Housley said.