|By Kimberly Pierceall, The
Press-Enterprise, Riverside, Calif.McClatchy-Tribune Regional News
June 27, 2009 - Much like homeowners who found themselves upside-down with overinflated mortgages, hoteliers are finding out their properties are worth far less than what they paid to build or buy them.
In California, 175 hotels are in default -- the first stage in the foreclosure process -- according to a report from Atlas Hospitality Group, an Irvine-based brokerage firm. Another 31 have been foreclosed, nearly one third of them in the Inland region.
Of those in default or foreclosure, about 75 percent obtained new loans between 2005 and 2007 for construction financing, re-financing or to buy the hotel, according to the firm. Atlas Hospitality estimates that 2,500 hotels -- about 25 percent of the state's entire hotel population -- refinanced or obtained new loans in that time meaning more defaults and foreclosures could be on the horizon.
Red Roof Inn recently announced it was in default on its mortgages. Extended Stay Inc. filed for Chapter 11 bankruptcy protection this month. Three of the company's Inland hotels -- a 104-room Extended Stay in Temecula, a 102-room hotel in Ontario and 102-room in Chino -- are in default, said Alan Reay, president of Atlas Hospitality. The 165-room Quality Inn & Suites Victorville is also in default, he said.
The industry has been rattled by foreclosures before, especially in the mid-1990s, but the impact today is more widespread, hitting both low-end and high-end properties in every region, Reay said.
"We have far, far more that are in trouble today than we did in the 90s," he said.
Those who bought hotels between 2006 and 2008 are likely sitting on properties worth at least 50 percent less than what they paid, he said.
"It's fast becoming one of the best buying opportunities of a lifetime," Reay said. The 292-room Marriott Riverside in the city's downtown wasn't in default or foreclosure, but its owner, Sunstone Hotel Investors, sold it for $19.3 million recently, one of the lowest prices paid per room for a Marriott property in the United States recently, he said.
Reay's firm is marketing The Block at Big Bear, a 50-room hotel that catered to snowboarders. The hotel's owner walked away earlier this year and closed the hotel, which is in default. The hotel was appraised for more than $4 million in 2006. Today, Reay's firm, working with a court-ordered receiver, is asking $2.04 million for the property.
Hoteliers will likely have to survive at least two more years of low revenues, diminishing profit margins and fewer rooms booked by travelers unwilling to spend.
Atlanta-based PKF Hospitality Research has forecast that the revenue hoteliers earn per room will reach its lowest point of the recession in the third quarter of this year.
The firm doesn't expect revenue growth until 2011.
Reach Kimberly Pierceall at 951-368-9552 or kpierceall@PE.com
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