Bank Forecloses on St. Regis Monarch Beach

(MoneyWatch)  The luxury hotel where the term "AIG Effect" was coined (due to AIG having a lavish corporate retreat after receiving government bailout money) was taken over by Citigroup Inc. Monday. The resort was in default for a $70 million loan.

With occupancy of only about 15 percent this summer, it was impossible to repay the loan and the 400-room hotel sank deeper in debt. However, owner Citigroup still must pay its $230 million first mortgage while continuing to look for a buyer. According to the Los Angeles Times:

Citigroup will continue to seek buyers for the resort while operating it as a St. Regis under a contract with Starwood Hotels & Resorts Worldwide Inc.,which owns the St. Regis brand. It will have to continue making payments on the $230-million loan, which is held by a hedge fund and Prudential Financial Inc. and will come due in a balloon payment in 2012.

Now Citigroup, the reluctant lender-owner, is in the hotel business and it's up to the bank to figure out a way to make money from the property. And if it can, it will be smarter than its last owner, Makar Properties. Right now, though, with so much debt and a tanking luxury market, it's unlikely that Citigroup has gotten anything less than a very fancy white elephant.

Photo of St. Regis Monarch Beach in Dana Point, Calif. courtesy of St. Regis