CHICAGO - Revenue and occupancy levels at the downtown St. Louis convention center hotel complex will continue to slide this year amid a deteriorating economic environment, bondholders who took ownership of the facilities last month were told in a recent consultants' report.

"National economic trends ... and competitive market fundamentals will create a very challenging operating environment for the hotel as the year progresses," consultant Jones Lang LaSalle Hotels told bondholders in a preliminary report issued earlier this month.

Investors initiated foreclosure proceedings against the hotel in January after the obligated group defaulted on the December debt service payment. Hotel revenues fell about $1.57 million short of the full $3.5 million interest payment owed on Dec. 15.

The hotel developer and lead member of the obligated group - Historic Restoration Inc. - late last year asked bondholders to hold off on foreclosure, but they refused. Bond trustee UMB Bank NA was the sole participant in an auction of the hotel, bidding the full principal amount of $98 million outstanding on the 2000 bonds.

The report's gloomy assessment echoed concerns raised by Moody's Investors Service earlier this month when it downgraded the credit to Ca from Caa2, warning that it is unlikely bondholders can recoup their full investment in an eventual sale of the facilities.

"The hotel's financial performance will continue to remain highly stressed, given the economic downturn, slowing convention center sales, and new or recently renovated competitive hotel supply," analysts wrote.

Jones Lang was charged with coming up with operational and financial recommendations for the facilities that remain open and are managed by Marriott Corp. The report outlined potential cost savings, including the possible closure of the Suites hotel to save money. The complex is made up of the 918-room Renaissance Grand and the 165-room Suites.

Occupancy rates are now expected to reach just 53.9% for the year, down from an original budgeted estimate of 57.3% and a rate of 63% last year. Revenues were revised downward from budgeted estimates by $4 million to $40.2 million and the expected net profit was revised downward by $1 million to just $556,632. The hotel complex saw a nearly $4 million profit last year. Maintenance costs are also on the rise.

The lodging industry in the city has experienced slow growth in recent years, and the outlook for this year is worsening. The report warns that the city is a "hard sell" for tourist and convention business because its downtown lacks sufficient attractions, aside from its famous Arch and the Cardinals baseball season.

On the convention front, the city lacks amenities touted by its chief competitors. Atlanta offers a stronger hotel stock and Delta Air Lines hub; Denver has newer hotel stock, easy accessibility to West Coast cities, and a moderate climate; Indianapolis offers lower fares and accessibility to Midwestern industrial corporations; and Minneapolis has a thriving downtown and a Delta hub.

"In order for St. Louis to successfully compete against these markets for group business, additional attractions, restaurants, and amenities will need to continue to be developed in the downtown area," the report read. The report found the hotel complex ranked well in both occupancy and cost per room, but warned that major renovations planned at three competitors will likely erode the Renaissance's market share.

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 uninsured bonds initially garnered a low investment-grade rating from Moody's but fell into junk bond territory as revenues failed to meet original projections.

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