News for the Hospitality Executive |
California
Hotel Defaults Decrease
By Howard Mathews
August 20, 2012 When the US economy began the recent
downturn and the bottom
dropped of the hotel market, some experts forecasted that things were
so bad in
the lodging business that in the coming three years there would be
twenty-five
hundred foreclosures of lodging properties in California. Of course,
everyone
panicked. In the past three years this
projected disaster has not been nearly as bad as some predicted. In that time there have been well under five
hundred lodging properties in California that have been foreclosed on. Even better news is that defaults of lodging
properties in California are continually decreasing and in the six
months ending
June 30, 2012 only thirty-eight lodging properties in California had
received
NODs (Notice of Defaults) filed against them.
In today’s economic conditions, a good many
of those lodging
properties in default will be able to work through those defaults with
the
existing lenders and will never be foreclosed on. Extrapolating
these thirty-eight defaults out
on an annual basis would mean 76 hotels, motels and B&Bs going into
default
out of over 10,000 lodging properties in the state.
This means that well under one-tenth of one
percent of the lodging properties are currently in default. During the worst part of the lodging property
fiasco over the past three years we saw less than five hundred
foreclosures of
lodging properties in California. While
that number is a significant increase from the normal amount of
defaults, this
is a far cry from the 2,500 defaults that were previously predicted by
others
in the lodging community. Hopefully, this relatively small percentage
of hotels and
motels in default signifies a turnaround in the lodging business and
supports
the contention that we are gradually coming out of the worst market in
the past
fifty years. Another indication of an
uptick in the market is a confirmation from large banks (some of whom
previously
had an entire division devoted to handling their many defaults on
hospitality
loans) state that they currently do not have any defaulting lodging
properties
in their portfolios. Joey Larsen, Chief
Portfolio officer for Resource Capital in Sacramento (a large and very
active
SBA CDC lender) states that while they still have a few lodging loans
in
default, the number is down by 50% for the first quarter of 2012
compared to
the same period of 2009. Rich Grant of TMC capital in San Francisco
says his defaults
from the past six months ending June 30, 2012 were 80% less than the
same
period ending June 30, 2009. He currently has only one loan for a
lodging
property in default. This also means a significant change in the
overall market
conditions in that the winter season is historically the slow season
for
California hotels. The desert areas enjoy a strong winter season, but
for the
majority of California hotels and motels, the winter is the slowest
season.
Winter is generally the time that a lodging property goes delinquent on
loan
payments. Now that the lowest income
months are behind us for 2012 and the busy summer incomes are upon us,
we can
expect fewer defaults for the balance of the year.
We are also seeing some areas of the state
showing increased
gross room income of 25% to 30% for the first six months of 2012, well
ahead of
the same period in 2011. This means that with incomes rising, the few
hotels
and motels that are currently in default (or close to it) will have a
much
better chance of completing a workout with their lenders to save their
properties. ____________________________ Howard Mathews of National Hotel Motel Brokers has handled hundreds of lodging property sales and more than a dozen workout situations for lodging properties in default. Howard can assist you in all types of lodging real estate transactions. He can be reached at 925 634-2299 or [email protected]. |
Contact:
Howard Mathews |