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San Bernadino County Leads California in Hotel Foreclosures,
States Numbers Have Spiked 184% in Past 60 Days Reports Atlas Hospitality Group

By Natasha Lindstrom, Daily Press, Victorville, Calif.McClatchy-Tribune Regional News

Jul. 8, 2009--San Bernardino County is leading the state in foreclosed hotels, and the number of California hotels in default or foreclosure has spiked 184 percent in the past 60 days, the Atlas Hospitality Group brokerage firm reports.

"We're definitely seeing a big, big increase in distressed hotels, and we expect that to continue to increase over the next 12 to 18 months," said Alan Reay, president of Atlas Hospitality. "The reason is that we're in a deep, deep recession and revenues are declining, and hotels are just struggling to have any cash flow."

Five of the state's 32 foreclosed hotels are in San Bernardino County, including three from the High Desert. Another 213 California hotels -- including Victorville's Quality Inn & Suites Green Tree -- have fallen into default, Atlas Hospitality reports. At least 10 percent of those struggling hotels are in San Bernardino County.

Motel 6 Hesperia, which opened in early 2008 as the Country Hearth Inn & Suites just west of Interstate 15 off Main Street, fell into foreclosure in May.

Valued at $12 million a year and a half ago, Motel 6 Hesperia sold last month through Atlas Hospitality for just $4 million, Reay said.

The new ownership, a group of hotel investors, took control of the 99-room facility last week, said Dave Staats, acting general manager for Motel 6 Hesperia.

"We're functioning at the same level they did for the last few months, which is pretty low," Staats said, "but we're going to make some rate changes and we're going to put up some signs off the freeway, so we're going to make this work."

Motel 6 Hesperia is the only one of 32 recently foreclosed California hotels that has been snapped up, Reay said.

"What's happening is that even though the lenders have taken these hotels back, they're not pricing them to sell," Reay said. "I don't think they're recognizing how far the market has fallen and how quickly."

After the PennyWise Inn Barstow fell into foreclosure in May, the property's two individual lenders decided to buy it to re-sell at a later date, said Dick DeCarlo, the director at KW Commercial brokerage firm who managed the sale.

One of those new owners, Arman Tez, of Los Angeles, said he believes the 81-room hotel can m a i n t a i n reve n u e because of the need for affordable housing near the property, just east of Interstate 40 on Main Street and a few miles from the U.S. Marine Corps Logistics Base. Tez said the hotel is now focusing on marketing weekly and monthly rates to draw steadier revenue.

"This is a good way for people to come in, pay very little, have a home with water, power, gas utilities and a little kitchenette so they won't be left in the streets," said Tez. He's already begun to upgrade the facility by adding new plants and furniture and Internet access.

Wi t h r e v e n u e s dropping 20 to 30 percent from a year ago at hotels across California, hotel owners with high debt payments are hurting the most, DeCarlo said.

More than 75 percent of California's troubled hotels obtained new loans between 2005 and 2007, Reay said. More than 2,500 California hotels either refinanced

or obtained new loans during that same period.

Based on today's market values, Reay estimates that none of those hotels have any equity remaining.

The hardships crippling current owners could lead to the "best buying opportunity for the past 65 years" in the hotel business -- if listing prices start to match market values, Reay said.

Staats, who has sold about 30 hotels over the past decade, agreed that too many owners selling hotels "are still clinging to their values of the properties as they were two to three years ago."

"I get a lot of people driving hard offers," he said. "They're making offers that are very tough for some of these owners to accept because it's not what they expect."

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Copyright (c) 2009, Daily Press, Victorville, Calif.

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