Apr. 16, 2010--The Fremont Marriott Hotel has been seized by its lender through a foreclosure, but it remains open with normal operations -- and will get a multimillion renovation, the hotel said Thursday.

A unit of American International Group Inc., or AIG, took back the 335-room hotel, whose owners had defaulted in September 2009 on a $38.5 million mortgage. The AIG unit, Western National Life Insurance Co., had provided the financing in 2007.

In an indication of the slump in property values for hotels and other commercial real estate, Western National Life placed a value of $27 million on the hotel when it foreclosed on the mortgage.

The difference between the mortgage amount and the foreclosure price represents a 30 percent decline in the value of the hotel property.

That decline in price doesn't surprise hotel industry analysts.

"Hotels have been devalued by 30 to 50 percent from their peak prices of just two years ago," said Jeff Higley, editorial director of Ohio-based Hotel News Now.

Analysts are wondering if more problems loom for the battered hotel sector.

"We all think we are at the bottom of the cycle, so things have to get better. Right?" Higley said.

The lender that now owns the hotel plans a big renovation at the Fremont Marriott.

"We have retained a third party manager to stabilize and run the hotel," said Linda Skolnick, a spokeswoman for Western National Life.

The Fremont Marriott's new general

manager, Orlando Carrasquillo, said the hotel has just re-signed its franchise agreement with Marriott International Inc.

"We are very excited about that," Carrasquillo said. "We have a meeting with Marriott at the end of this month to start planning all of the renovations." The previous hotel staff has been kept on by the new management.

The upgrade will cost millions of dollars. The first section of the hotel likely to receive tender loving care is the lobby.

"We have a property improvement plan put together with Marriott that will be carried out over the next five years," Carrasquillo said.

The lobby is expected to be reborn as a "great room" concept pioneered by Marriott, he said.

"Just the cost of the lobby alone is a couple of million, probably," Carrasquillo said.

The "great room" lobby at a Marriott typically provides a large space that enables business travelers to work, socialize, relax and entertain throughout the day, according to Marriott's online site. These kinds of lobbies often include wide screen televisions, a combination bar and dining area, and lightning-fast Internet access.

Still, the recession has devastated the hotel market statewide and locally. In the Bay Area alone, 106 hotels are burdened by problem mortgages, Atlas Hospitality Group reported earlier this week.

These defaults were unleashed primarily by a nose-dive in revenue. In some cases, hotel owners simply couldn't generate enough revenue to pay their mortgages.

"Business travel fell off seriously," Higley said. "Leisure travel is down."

All of this means recovery for the lodging sector could be a long way off, according to Hotel News Now.

"Our company believes it may be six, eight, maybe 10 years for those hotels to get back to their early 2007 levels for revenue, adjusted for inflation," Higley said.

Despite the forbidding landscape for Bay Area hotels, the new owners of the Fremont Marriott intend to make the hotel a top-line place to stay.

"At the end of the five years, there will be a total, full renovation," Carrasquillo said. "Every part of the hotel will be renovated, even the furniture in the rooms."

Contact George Avalos at 925-977-8477.

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