Ownership of Morgan Stanley Real Estate Fund V Resorts at Stake

Investors jockeying to control the fate of eight huge U.S. resorts are pushing to get the Feb. 1 due date of $1.5 billion of debt on those properties extended.

At stake is ownership of the CNL Hotels & Resorts Inc. portfolio, including Hawaii's 780-room Grand Wailea resort and the 739-room Arizona Biltmore resort in Phoenix.

The CNL resorts are owned by Morgan Stanley Real Estate Fund V, which financed its 2007 purchase of the portfolio by saddling the properties with $3.3 billion of debt. The restructuring of that debt will likely be one of the largest in the commercial-real-estate market this year.

The latest twist in the CNL saga came earlier this month, when investors led by Paulson & Co. and Winthrop Realty Trust reached an agreement with the Morgan Stanley fund to take control of CNL, exchanging their $600 million of CNL's corporate mezzanine debt for the company's equity, according to court documents and people familiar with the matter.

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Paulson Group Said to Seize Some CNL Hotels From Morgan Stanley

A lender group including Paulson & Co., the New York-based hedge fund run by John Paulson, seized control of former CNL Hotels & Resorts Inc. properties from Morgan Stanley’s real estate funds through a $600 million debt restructuring, said two people with knowledge of the deal.

The transaction involves the corporate debt used to finance Morgan Stanley’s 2007 acquisition of the hotel owner near the peak of the real estate market. Under the terms of the restructuring, $200 million of corporate debt was extinguished and $400 million was converted into equity, said the people, who asked not to be identified because the information is private.

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