CHICAGO - Investors who hold $98 million of St. Louis convention center hotel bonds took ownership of the hotel complex yesterday following foreclosure proceedings launched last month by bondholders after the obligated group defaulted on its December debt service payment.

As part of the foreclosure proceedings, an auction was held yesterday at the St. Louis Civil Courts building during which bond trustee UMB Bank NA was the sole participant, bidding the full principal amount of $98 million outstanding on the 2002 bonds.

UMB will convene a bondholders conference call on Thursday, Feb. 19, at 10 a.m. Central Time to provide bondholders with a hotel update and a report being developed by consultant Jones Lang LaSalle Hotels that will include operating recommendations.

UMB officials stressed in a statement that the ownership change does not impact hotel operations. Marriott Corp. manages the hotel complex.

"It is business as usual and none of the activities surrounding the foreclosure will change the high quality of the product and service that the St. Louis Grand Renaissance customers have come to appreciate," the statement read.

The St. Louis Convention and Visitors Commission, which has been working to promote the hotels in hopes of increasing occupancy, didn't have an immediate comment.

The foreclosure proceedings were triggered after the obligated group failed to make the full $3.5 million interest payment owed on Dec. 15. Available hotel revenue fell about $1.57 million short of the full payment. The hotel developer - Historic Restoration Inc. - late last year asked bondholders to hold off on foreclosure, but they refused.

The foreclosure comes as the hotel complex's prospects have dimmed. The latest projections from Marriott showed the hotel falling into a deeper financial hole than expected just a few months ago amid a faltering economy that is affecting convention and tourism business.

The managers expect to generate an operating surplus of just $650,000 this year, although that is before proposed cost reductions are made. The occupancy rate in 2009 is expected to decline to 58.7%, compared to the prediction of 60% in November.

A shortfall in June's payment was covered by HRI, which purchased a majority ownership in the project originally owned by Kimberly-Clark Corp. HRI currently acts as a managing member of the obligated group, known as Gateway Hotel Partners LLC and Gateway Tower Partners. Kimberly-Clark, through its subsidiary Housing Horizons LLC, originally held a majority stake of 85%.

The St. Louis Industrial Development Authority issued the senior-lien revenue bonds in 2000 as part of a complicated financing scheme to acquire and renovate the $266 million hotel complex that serves the city's convention center. The 165-room Renaissance Suites opened in 2002 and the 918-room Renaissance Grand opened a year later.

The bonds initially garnered a low investment-grade rating from Moody's Investors Service, but have since fallen deep into junk-bond territory as revenue failed to meet projections following the economic slump after the 2001 terrorist attacks.

UMB posts bondholders notices at conventionhotelbondholders.com.

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