The Ritz Carlton in Rancho Mirage may be behind schedule by a year and over budget by 10%, but the $600 million resort had better timing than most. It achieved its financing during the best of times, not the recent worst of times, says the developer.

"We're over that hump," said Jerry Landeck, a senior partner with Gencom Group, which has developed seven Ritz Carltons.

Developers looking to finance a massive luxury hotel today likely will find traditional lenders with less understanding of mixed-use developments. They typically gauge how much they're willing to lend based on asset performance and not on future revenue from residential sales if its part of the project.

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Photo Courtesy of Gencom

A digital rendering of what the patios of some of the rooms will look like at the Ritz Carlton in Rancho Mirage.

"The lenders who understood both ... are sort of out of the lending industry," Landeck said.

Some proposals for massive hotel developments, especially in popular tourist destinations like Las Vegas, where developers became early adopters of the condominium-hotel concept that allowed them to sell rentable units in order to build a hotel, have been crushed amid a falling economy.

Morgans Hotel Group announced earlier this month that its joint venture with Boyd Gaming to build two hotels in Las Vegas, a Mondrian and Delano, will stall because it seemed unlikely Boyd will get construction financing at "favorable rates and conditions by Sept. 15," according to a release from the hotel group.

Now more than ever lenders want to see more liquidity from the start, about 10% to 15% of the project's total buildout cost, said Donald Wise, managing partner with Johnson Capital's hotel division.

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Developers looking to finance a massive luxury hotel likely will find traditional lenders with less understanding of mixed-use developments.

Lenders also want to see that the developer is experienced in building luxury hotels - both on time and on budget.

"They don't want to have that developer coming back with their hand out," Wise said.

Suzanne Mellen with HVS, a worldwide hotel and tourism-related consulting group, said lenders still look on luxury hotel proposals slightly more favorably than other hotel projects, simply because they're usually deemed more "special," but if the interest rate itself isn't inflated, lenders are seeking full recourse, which gives them access to all of a borrower's assets if he stops paying.

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The Ritz Carlton in Rancho Mirage is still under construction.

Normally, a down economy would be the perfect time to start planning and seeking financing for a massive hotel project since the property would be timed to open as the economy brightened. No longer.

"That was easier to do the last time around after Sept. 11 because the debt markets didn't dry up," she said.

Plus, selling condo or residential properties that double as rental units in the hotel, a primary tool for financing massive luxury hotels of late, has been shaken as the housing market in tourist destinations stagnates.

"The very tool that they were using to make these things work has been taken away," she said.

In Gencom's case though, about half of the total $600 million buildout cost will go toward building real estate products to sell. So far, out of 16 million-dollar condos on the market, 11 have sold. Selling condos and homes attached to the hotel priced from $885,000 for a studio to $8 million for a single-family house was the only way Gencom could justify the costly renovation, Landeck said.

"It's a pay-as-you-go process," he said.