Nov. 3, 2009--A year ago, the average Shore Club room took in nearly $200 a night during the slow summer travel season. This summer, the hotel barely generated $100 per room.

Add in revenue from the bar and restaurants -- favorite stops for celebrities on the South Beach party circuit -- and the numbers get worse: Profits plunged 113 percent at the Shore Club this summer, a rough stretch that saw the 309-room hotel fall behind on its mortgage.

Hotel experts say they aren't surprised by the distressing fiscal swing at one of South Beach's hippest getaways. Across South Florida, similar meltdowns are hitting hotel bottom lines.

"There are quite a few properties on the beach that are facing this problem right now," said Boaz Ashbel, who specializes in hotel deals for the Aztec Group, an investment banking firm in Coconut Grove. "It's going to get a little hairy."

Troubled South Florida hotel loans are a tiny part of a major problem facing banks around the world -- one that experts say could still cause a crash in the financial system.

The Dow Jones Industrial Average gave back more than 100 points Monday after a top Federal Reserve official told Congress that U.S. banks could face substantial losses next year on commercial loans and that some may not have enough reserves to cover the bad debt.

MONEY TROUBLES

Like local homeowners, South Florida hotels that borrowed money in the past four years face the biggest problems.

Debt payments based on projections from a long-gone hotel boom can't be sustained by bargain room rates brought on by the recession. Plunging real estate values make paying off a loan in a sale or a refinancing difficult, if not impossible.

That's setting up what could be an epic shakeout in one of South Florida's biggest economic engines as investors try to scoop up distressed hotels at deep discounts.

"You're seeing people starting to offer hotels that were not for sale three months ago," said David Brillembourg, CEO of the Brilla Group in Miami.

In September, the hedge fund bought South Beach's Raleigh Hotel and is pursuing other hotels in that area.

The deal was seen as a good one for owner Andre Balazs and partners, since the $30 million sale price was 20 percent more than they paid for the 104-room hotel in 2002.

Market watchers predict fewer deals for sellers to celebrate next year as more owners fund debt payments out of pocket and buyers insist on bargain prices. "The buyers still think they have time to wait," said Victor Lopez, a former Hyatt executive who now is helping investors pursue deals as president of VLO & Associates in Coral Gables. "They're waiting for misery to get a bit more miserable."

ROOM RATES

The buyer's market for hotels coincides with a buyer's market for hotel rooms -- the economic downturn has forced hotels to roll back rates to where they were in 2006.

Daniel Peek, who specializes in hotel deals for commercial real estate firm HFF in Coral Gables, said he's seeing more owners dip into their pockets to fund loan payments and even payroll at their hotel. "It's not going to go on forever," Peek said. "This is going to lead to a lot of foreclosures."

And while selling a hotel at a loss may be a debacle for the owner and lender, it could be a boost for the property itself -- and for the guests checking in. The new owner can take over with a smaller monthly loan payment and more cash to fund maintenance and repairs.

"That's the first place where they typically cut back: maintenance, and furniture and fixtures," said Lopez, who formerly supervised Florida hotels for Hyatt. "The bed starts to sag, and maybe the air conditioning doesn't work as well."

Even with South Florida hotels under pressure, other markets face more turmoil, said Tom Fink, senior vice president at Trepp, which analyzes commercial mortgage-backed securities.

His study of hotel CMBS debt shows South Florida about in the middle of the pack when it comes to severely distressed loans. South Florida ranked No. 17 out of 50, behind Orlando (No. 10) and St. Louis (No. 1.)

"Yes, it's bad in Miami," Fink said. "But there are other markets where it's much worse."

MISSED PAYMENTS

The Sagamore, a 93-room hotel in South Beach with a neon swing hanging in its lobby, is 60 days late on its $170,000 monthly loan payments, according a report filed by the loan's servicer, LNR.

In a statement, the Sagamore said the missed payments were a requirement to get its lender to consider negotiating new terms for the loan.

"The lender could not meet with us for any such discussions," Sagamore principal Neil Sazant said. "They were only able to participate if the mortgage was in default."

Three blocks away at the Shore Club, LNR said the hotel threatened to shut down if it couldn't use mortgage reserves to pay bills, including to fund payroll.

A Shore Club spokesman did not respond to a request for comment, but earlier blamed the missed payment on a dispute over how renovation work should be funded at the hotel.

The loan problems aren't reserved for chic boutique hotels, either.

The Crowne Plaza Sawgrass Mills, where rooms rent for $96 a night on weekends, was listed as 60 days behind on its $128,000 loan payments.

"Borrower is requesting a loan modification due to poor cash flow," LNR wrote in its report. "Negotiations are in process."

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