|By Jondi Gumz, Santa Cruz Sentinel,
Calif.McClatchy-Tribune Regional News
Jan. 04, 2011--SCOTTS VALLEY -- Lenders are foreclosing on the owners of the 187-room Scotts Valley Hilton, setting a Jan. 18 sale date for an unpaid debt of $16.8 million.
According to a default notice filed with the county, $1.2 million was owed as of mid-July.
Statewide, 582 hotels were in default or foreclosed on in the third quarter, up 71 percent from a year ago, according to the Irvine-based Atlas Hospitality Group.
The fourth-quarter survey has not been posted yet but Atlas Hospitality founder Alan Reay predicted an uptick for the first three to six months of 2011.
"Loans are coming due," he said. "Banks had forbearance agreements that are expiring."
He estimated as many as 1,000 more hotels in California may be in distress, with some sort of agreement postponing loan payments.
In Santa Cruz County, there are no bank-owned hotels but three are in default, with the Hilton the largest.
Only one hotel, with 62 rooms, was in default at the end of 2009, according to Atlas Hospitality.
The Scotts Valley hotel, which features a mountain chateau facade, opened in 1999 at 6001 La Madrona Drive, became affiliated with Hilton in 2001, and reported 46 employees in its most recent business license.
The owners, The Inn at Scotts Valley LLC, obtained a $17 million loan in 2005 from German American Capital Corp., a subsidiary of Deutsche Bank.
Before the year ended, the loan had been packaged with others into commercial
mortgage securities -- 2005-CD1 Commercial Pass Through Certificates -- and sold to investors. In July, Bank of America took over the job of distributing payments.
Attempts to reach the owners and Derek Smith, the attorney listed in the loan document, were unsuccessful.
A caller asking about the room rate for Saturday night was given a quote of $169 for a king bed, then offered a rate of $151.20 including breakfast for immediate booking and payment.
Reay said the number of foreclosed California hotels sold to new buyers increased in the third quarter. He expects that trend to continue, partly because lenders are realizing the difficulties in running an operating business like a hotel.
Mayor Dene Bustichi said the most recent communication from the hotel operators was a request for more time to pay room taxes and "they became current."
The hotel also is current on its property tax, according to the county tax collector's office.
The annual tax bill is $169,288.
However, the hotel is "under water," based on the assessment of $13.3 million, which is less than what the hotel owners owe to lenders.
"I don't see the Hilton closing," said Bustichi, who expects it will "probably transition into other ownership. Operationally it's doing OK."
He figures the move by the lenders would "allow new ownership to restructure debt and be able to operate" the hotel.
In some cases, investors step in; in others, the lenders take charge.
The Blackstone Group acquired 14 hotels at risk of foreclosure, including the 436-room Westin San Diego, last month after Fitch Ratings reported a $539 million loan due to mature in October.
In Santa Rosa, when a foreclosure sale of Courtyard by Marriott attracted no bidders, the five-story hotel reverted to its lender, RBS Financial Products, and the court-appointed receiver planned to stay on to manage it.
Maggie Ivy, who heads the Santa Cruz County Conference and Visitors Council, said she was sorry to hear of the financial difficulties at the Scotts Valley hotel.
Her organization pushed for a room assessment to bolster marketing to increase overnight hotel stays. The first installment of funds in October went into an online marketing campaign targeting leisure travelers, producing a 25 percent increase in activity on the www.santacruz.org website.
"Properties such as the Hilton are on the website," Ivy said, noting October occupancy was up 1.5 percent.
The drop in corporate group travel resulting from the so-called AIG effect has cut bookings.
Ivy said she is working with full-service hotels to have a presence at key trade shows, such as the Meeting Planners International Northern California chapter in San Francisco in February. A spring tour is planned to familiarize meeting organizers with Santa Cruz County hotels and resources such as Club Ed surf school, Kayak Connection and Kennolyn Camp's ropes course.
Debbie Quigg, co-owner of the Pacific Blue Inn, is cheering the mention of the boutique hotel in The New York Times travel section Thursday.
As penned by former Sentinel staff writer Dan White, "36 hours in Santa Cruz" suggests a walk at Seabright State Beach, a hike at Wilder Ranch State Park, music at the Rio Theatre, snacks at The Buttery, wine tasting at Swift Street Courtyard, salsa dancing at the Palomar Ballroom and dining at Laili and La Posta.
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