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First Quarter 2010 Report Shows 106 San Francisco Bay Area
Hotels in Default, Up 10.4%  from Q4 2009

By George Avalos, Contra Costa Times, Walnut Creek, Calif.McClatchy-Tribune Regional News

Apr. 13, 2010--More than 100 hotels in the Bay Area are now suffering from problem mortgages, according to a new report that sketches ongoing woes for the lodging industry.

During the first quarter of 2010, an estimated 106 Bay Area hotels were either in foreclosure or default on their mortgages in the first quarter, Atlas Hospitality Group reported.

That was up 10.4 percent from the 96 hotels in the nine-county region that struggled with mortgage delinquencies in the 2009 fourth quarter, the October-December period.

"This problem is definitely going to continue," said Alan Reay, president of Atlas Hospitality. "We are still seeing declines in room revenue. That is having a major impact on the ability of hotel owners to pay off their mortgages."

During the first quarter, the Bay Area regions hammered hardest by problem mortgages were Alameda County, Santa Clara County and Sonoma County.

Delinquent and foreclosed mortgages for hotels totaled 24 in Alameda County, 21 in Santa Clara County and 19 in Sonoma County, Atlas determined.

Among the prominent East Bay hotels that have landed in mortgage defaults: The 335-room Fremont Marriott Silicon Valley, in default on a $38 million note; the Homestead Village in San Ramon; and the Park Plaza Hotel in Oakland, which has been struggling with a mortgage default of $14 million.

Some defaults could lead to a revival of the hotel involved. The Sheraton Pleasanton Hotel, located next to Stoneridge

mall, went into default, suffered a foreclosure. Then it was bought by a new owner who plans a $2 million upgrade.

"Something like 80 percent of the markets in California were down in terms of hotel revenue," said Reay, whose company handles hotel property transactions. "Many owners will not be able to survive at these low rates of revenue."

The slump in per-room revenue for hotels could unleash a vicious cycle, he warned.

"That leads to more distressed hotels and more problem loans," Reay said.

Measured by percentage increase, the steepest climb during the first quarter came in San Francisco, with a 44 percent jump in delinquent or foreclosed hotel mortgages. Santa Clara County was next worst with a 16.7 percent increase, while Alameda County rose 14.3 percent.

"Industries related to tourism and business travel have been hit hard," said Brad Kemp, an economist and director of regional research with Beacon Economics. "Hotels will continue to be weak and I expect foreclosures to rise."

California-wide, 406 hotels were suffering from problem loans in default or foreclosure in the January-March period of this year, Atlas Hospitality reported.

That was up 10 percent from the 369 hotels in California burdened by delinquent loans during the fourth quarter of 2009.

"We are also seeing hotel owners who tapped reserves to feed their properties are now starting to run out of these reserves," Reay said.

The number of hotels statewide that are in some sort of financial distress due to failing mortgages could actually be much higher than what can be readily determined. The defaults and delinquencies that Atlas cited in its official numbers are based on public real estate records.

"We believe the real number of distress deals is much higher than shown in our report," Atlas Hospitality stated in its report. "We estimate closer to 1,000 hotels are operating under some form of forbearance agreement."

Contact George Avalos at 925-977-8477

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To see more of the Contra Costa Times, or to subscribe to the newspaper, go to http://www.contracostatimes.com/.

Copyright (c) 2010, Contra Costa Times, Walnut Creek, Calif.

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