Client List Development Asset Management	Business E X T R A THE SAN DIEGO UNION-TRIBUNE - TUESDAY, MAY 11,1999 OPULENT . OPPORTUNITY By Dean Calbreath STAFF WRITER
		In the central hall of the palace, a string ensemble plays Mozart beneath a ceiling adorned with baroque angels flitting through azure skies. In a village square nearby, a small band in lederhosen plays a polka, as children dance around a brightly colored maypole. The palace and the village,		complete with statues of Baron von Munchausen and the Brothers Grimm, appear to be in the heart of the Bavarian woods but they're not. They are in the far northern reaches of Japan, where the palace is the centerpiece of a resort that was designed to give Asian tourists a little taste of Europe.
		The resort, though, has fallen on hard times because of the Asian economic crisis and is looking for buyers. And it's part of a growing portfolio of debt‑ridden Japanese hotel and resort properties being handled by Hospitality Asset Services in San Diego. The consulting firm specializes in turning around troubled hotels and packaging them for resale. "The Japanese market is coming back, if not this year then later," insists HAS founder Gus Sader, whose firm is evaluating $500 million worth of hotel debts in Japan. "Japan is extremely resilient. It's an excellent market for American investors to buy cheap and then sell high within two or three years." Not all hoteliers are so sanguine about the Japanese market, however. "Even now, there's a big gap between what most buyers are willing to sell their properties for and what most sellers would be willing to pay," says Holden Lim, a senior associate with HVS International, a hotel consulting firm in San Francisco. "Hotel valuations are at a very volatile stage right now, especially with people talking about the possible devaluation of the yen." Michael Meyer, director of Pacific Capital Investors in Irvine, adds that property values in Japan have not yet hit bottom and that it will be a while before tourism in Asia picks up. "There's still a question of which Japanese banks will be able to survive their restructuring and which companies will be making massive layoffs," Myers says. "All of that has an impact on discretionary spending. It will probably be three or four years before there's significant growth in demand at resort hotels in Japan." Nevertheless, Sader is so upbeat about the Japanese market. that he is preparing to open an office in Tokyo, joining a network that includes HAS representatives in Los Angeles, New York, Paris and Beirut. For him, finding buyers for Japanese hotels should be no harder than finding investors for hotels in Southern California after the S&L crisis. Or Beirut, after the Palestinians and Israelis ink their peace deal. Or Croatia, once the war in nearby Yugoslavia is resolved. Sader already is contemplating moves in both of those markets. "We're in the turnaround business," he says. "If a hotel's not performing at its best, we help improve it so the owner can sell it. And if the hotel's already in bankruptcy, we do our best to find out what went wrong." Sader has been in the hotel business for nearly three decades. After obtaining a degree in hotel management in his native Switzerland, he managed hotels in prewar Lebanon before arriving in the United States to earn a degree from Cornell University. Over the next 15 years, Sader managed and consulted for hotels throughout Europe, the United States and the Middle East for such chains as Omni, Holiday Inn, Sheraton, Hilton and Radisson. His most challenging experience came during the S&L crisis, as thrifts foreclosed on deadbeat borrowers ‑ including hotel owners and managers 7 to recoup overdue loans. Between 1991 and 1994, Sader was an asset manager at Great Western Bank, responsible for overseeing a portfolio of hotels worth $300 million, including the Econo Lodge and Seven Seas/Best Western in San Diego. Great Western gave him five years to stabilize the assets by preparing the hotels for sale, but within just 3 1/2 years, he had sold the portfolio, producing an $8 million profit for the bank. Unfortunately, through his rapid revamping of the portfolio, Sader had worked himself out of a job. Shortly after leaving Great Western, though, he launched HAS. Since founding HAS in 1995, Sader has done consulting and asset‑management work for more than a dozen hotels throughout California, besides managing three hotels in North Hollywood, La Quinta and Oakland. His method of operation is similar to what he established at Great Western. First, he takes two or three months to evaluate every aspect of a hotel: the location, engineering, marketing plan, management, staff, reception area, restaurant. Even the laundry. "So many elements make up success," he says. "You can't make war if your house isn't in order." Once he identifies the hotel's strengths or weaknesses, he spends another month or two evaluating its standing in the marketplace: "Who are the hotel's competitors? Why do they have better market share? If it's an extended‑stay hotel, does it have microwaves in its suites? Coffee makers? Ironing boards? Hair dryers? You have to evaluate and criticize everything in your product vs. what the competition is doing." At the Clarion Suites Hotel in North Hollywood, which Sader manages on behalf of a Swiss owner, he's been able to increase revenues 35 percent over the past year by setting up promotional links to Universal Studios and by establishing ties to chambers of commerce, which direct corporate business in his direction. Besides managing hotels, Sader also serves an an expert witness and investigator in bankruptcy court when a hotel goes belly up. "Once we start evaluating, we often find out that the borrower did not manage the property well," he says. "Sometimes, they charge the hotel for their own personal expenses, like a back yard pool at their home or a private jet." Other times, he says, hoteliers have would up in the red through negligence. At the Ramada Inn in Buena Park, for example, management claimed that it had been unable to hit the hotel's occupancy projections because of the soft tourism market. However, Sader found that for 18 months, the managers had failed to pay the fees for the hotel's 800 number and the Ramada name, which is franchised for a monthly fee. Cut off from the 800 number and the help of Ramada's nationwide switchboard, the hotel had a hard time attracting customers. Armed with Sader's testimony at bankruptcy court, the chief creditor, Cathay Bank, was able to seize control of the hotel after proving that it was being mismanaged. Sader's testimony has proven valuable to other financial firms, eager to clean up problematic properties. "He's extremely helpful in understanding the operational issues at hotels," says Pat Toomey of Amresco, a financial services firm that hired Sader to evaluate a hotel in Lancaster. "We were dealing with a difficult borrower in a difficult market under an adversarial situation, but Gus was able to give us good information about the hotel." Sader became aware of the opportunities in Japan early last year, when a Seattle law firm contacted him, saying it had banking clients in Japan who were eager to have him evaluate their past‑due hotel loans. Sader flew to Japan, winning a contract to oversee a $500 million portfolio of bad loans. During his first tour of the island nation, Sader visited five hotels in Tokyo, Okinawa and the Tokachi region. But the place that impressed him most was the "unbelievable, incredible castle" in the Obihiro region in the far northern reaches. The farmland around Obihiro attracted a number of German emigres at the turn of the century, solicited by the government to teach farmers European agricultural techniques. In the mid 1980s, businessman Atsuo Nishi commemorated the emigres' work by building an exact replica of the Bueckeberg palace in the center of the Obihiro farmlands, transforming the site into a 100 suite, five‑star hotel. Nearby, he built a small village, including replicas of Hanau's medieval town hall, Prince Maximilien's villa from Kassel and the birthplace of the Brothers Grimm. It's surrounded by an amusement park with German‑themed attractions. Nishi dubbed his complex Glucks Konigreich, or the Kingdom of Good Fortune. And the kingdom had good fortune during its first years of operation, especially during the winter months, when the snowfall gave tourists from more tropical regions of Asia their first look at a frosted landscape. More recently, however, tourism within Asia has dried up, and the Glucks Konigreich has had a hard time paying its bills. Sader's firm was called in to help reposition the palace and act as the owners' representative in selling the property or finding new investors. "We look at this as a way of helping investors get a foothold in prime property in Asia, creating a gateway to further acquisitions in Japan," Sader says. "It's a remarkable property for the savvy, sophisticated investor. This kind of asset just doesn't exist anywhere else in the world." Some industry analysts might take issue with his rosy view of the hotel climate in Japan, but that doesn't deter Sader. Indeed, he's ready to plunge boldly into other areas where investors fear to tread. Sader has had a representative office in Beirut since 1995, hoping for an end to the Arab‑Israeli conflict so Lebanon can regain its status as the Switzerland of the Middle East. "The area is ripe for tourists, but it hasn't been developed yet because of the tensions," he says. "We've been talking to several hotel ownen, but nothing's been signed because we're waiting to see what happens with the Palestinian peace process." Another potential tourist destination is Croatia, which was once one of Europe's most popular destinations before its bloody war breaking away from Yugoslavia in the early 1990s. For the past two years, Sader has been in discussions with the owner of the Palace Hotel, a resort founded by Bob Guccione, the publisher of Penthouse magazine. The hotel, which has fallen on hard times because of the Balkan wars, is on an island off the Croatian cost. "The hotel is nowhere near where the war's going on, but everyone has been avoiding the area because of what's been going on in places like Bosnia and Kosovo," he says. "It's a beautiful hotel. It could be a real winner once the war ends.