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In California 79 Hotels Fall into Foreclosure During First Three
 Months of 2010; Lenders Seek to Keep Hotel Doors Open

By Kimberly Pierceall, The Press-Enterprise, Riverside, Calif.McClatchy-Tribune Regional News

April 3, 2010 --Lenders stuck between a distressed hotel loan and the prospect of investing more to keep a hotel open have, in some cases, opted to sell the loan to investors rather than foreclose, according to the president of a Southern California hotel brokerage firm.

"Lenders are loath to take these back," said Alan Reay, president of Irvine-based Atlas Hospitality. Unlike other properties, keeping a hotel open requires investment in managing it, he said.

When the Horizon Hotel, a small boutique property in Palm Springs, fell into foreclosure last year, Ghassan Sader's management company was hired in February 2009 to turn it around.

"Banks are talking to me," he said. "They are telling me, 'Mr. Sader, prepare yourself. We have a wave of foreclosures coming.'"

The number of foreclosed hotels in California continued to climb in the first three months of 2010, according to the most recent survey from Atlas Hospitality.

Since the end of 2009 to March 31, the number of foreclosed hotels statewide increased 27.4 percent to 79 properties.

Sader said lenders who choose to close the hotels after foreclosure would be wise to keep them open instead, otherwise "it loses a lot of money and it loses a lot of value."

Sader's firm Sader Hospitality Worldwide LLC managed the Horizon Hotel until March 31 and said he stepped up marketing, customer service and training employees that remained through the hotel's foreclosure.

The Two Bunch Palms hotel and spa in Desert Hot Springs was placed into receivership on Tuesday while loan issues between the owner and the lender, Bank Midwest, are ironed out. The hotel has not been foreclosed.

Kirby Payne, co-president of HVS Hotel Management who was brought in to maintain the hotel, said they planned to keep all 110 employees on the resort's payroll. Hotel guests shouldn't notice the difference, he said.

For lenders who choose to sell the loan rather than take control of a hotel, there's a new breed of buyer.

Dubbed "loan to own," the investor buys the distressed loan from the bank with every intention to foreclose on the property in order to own the real estate. They risk the borrower filing for bankruptcy first.

That happened with the Four Points by Sheraton in Rancho Cucamonga when the borrower filed for bankruptcy, preventing the investors who bought the loan from foreclosing, Reay said.

The Hotel Indigo in Ontario was foreclosed and sold in 2009 after an investor bought the loan.

Smaller independent hotels have been more likely to succumb to foreclosure than the branded or franchise hotels.

That will likely change, Reay said.

In the Inland region, there were still 17 hotels that had fallen into foreclosure, although there was one fewer hotel in Riverside County. In a prior list, Atlas Hospitality had counted the Emerald Court Hotel in Cathedral City as a foreclosed hotel. It's since been converted into office space.

In San Bernardino County, the Tree Top Lodge in Lake Arrowhead joined the list of foreclosed hotels.

Palm Springs hotels Desert Moon and El Rancho Lodge were new to the list of foreclosed properties in Riverside County.

The 15-room Posh Palm Springs hotel fell into foreclosure in August 2009 while it was the Desert Bear. At the time, the owners owed $757,000 on the loan. An investor who bought the loan and foreclosed on the property sold it in September to the hotel's current owners Michael and Susan Antal for $807,500, according to Atlas Hospitality Group.

Los Angeles County had seven foreclosed hotels. San Diego and Sonoma counties each had six.

Reach Kimberly Pierceall at 951-368-9552 or


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