|By George Avalos, Contra Costa Times,
Walnut Creek, Calif.McClatchy-Tribune Regional News
May 11, 2011--The Red Lion Hotel in Concord has been jolted by a default on its loan, adding to the financial woes of a property that closed its doors abruptly about two weeks ago.
The property is delinquent on a $7.8 million mortgage, Contra Costa County records show. The lender on the hotel, Far East National Bank, issued the notice of default May 3 against hotel owner Elite Concord Group.
In late April, the 189-room hotel abruptly shut its doors, telling workers the night before that they were out of a job and informing guests by placing notes under their doors.
The setbacks at the hotel epitomize the financial woes afflicting an array of commercial realty properties in the Bay Area.
Numerous office, retail and hotel buildings were bought and financed at the height of a property market that in recent years has collapsed beneath the weight of a faltering economy and sinking values.
"When the markets started to collapse in 2008, hotel revenue and performance in some markets dropped by 40 to 50 percent," said Jason Jones, a senior vice president with Jones Lang LaSalle Hotel, a commercial realty brokerage.
The inn's ownership group, headed by hotel entrepreneur Kevin Akash, paid $11.2 million for the hotel in December 2007. As part of the purchase, the owners obtained a $7.8 million mortgage from the bank.
The hotel now is thought to be worth about $5 million.
"With the decline in value and revenue for hotels, a lot of
owners find they can't support the debt level they took on," said Lysle Waterman, a senior associate with Marcus & Millichap, a commercial realty brokerage.
In 2007, the hotel, located at 1050 Burnett Ave. in Concord, was generating about $4.2 million in a year in room revenue; by 2010, that had dropped to about $2.2 million, according to industry analysts. That's a 48 percent decline in revenue.
In recent months, the revenue squeeze was so severe that the hotel owners skipped or delayed payments on some bills, including PG&E, food and alcohol, according to Brian King, who had worked at the hotel for four years.
The owners of the hotel are attempting to sell the property, according to listings on the Loopnet service. The hotel is being offered for sale at $8.5 million, the listing shows. Were the owners to get their asking price, that could cover the $7.8 million loan on the hotel and possibly other costs. Akash couldn't be reached for comment.
A number of prominent hotels in the Bay Area have tumbled into mortgage defaults.
Among them: 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. In addition, the The Doubletree Berkeley Marina hotel became mired in a $160 million mortgage in mid-2010.
In San Francisco, the iconic Renaissance Stanford Court and Four Seasons hotels went into default on their property loans.
Some defaults could lead to a revival of the hotel involved. The Sheraton Pleasanton Hotel, located next to Stoneridge mall, went into default and foreclosure. It was then bought by a new owner who plans a $2 million upgrade.
The slump in the hotel market is widespread in California, according to figures compiled by Smith Travel Research.
From December 2007 to the end of 2010, hotel room revenue slipped 9.7 percent in California, 18.9 percent in the East Bay and 23.2 percent in the South Bay.
San Francisco bucked the trend with a 1.7 percent increase in room revenue over the same three-year period.
"The issue is a lot of these properties were financed at the height of the property bubble," Jones said. "They were financed with the assumption that property values would increase aggressively."
Contact George Avalos at 925-977-8477.
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Copyright (c) 2011, Contra Costa Times, Walnut Creek, Calif.
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