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Bad Hotel Loans Could Total as Much as $560 million in San Diego County
and Take Eight Years for the Market to Absorb

By Pat Maio, North County Times, Escondido, Calif.McClatchy-Tribune Regional News

Nov. 05, 2010--SAN DIEGO -- A shadow inventory of $400 million to $560 million in loans used to buy hotels prior to the Great Recession may be in trouble in San Diego County, an influential broker said Thursday.

The inventory of potentially bad hotel loans could take eight years for the market to absorb, said Alan X. Reay, president of Irvine-based Atlas Hospitality. The volume of bad loans far exceeds any that he has ever seen.

"I don't know how many more will go into default. It depends if the banks have to liquidate the market," said Reay, referring to regulators who have been slow to push for reserves on the bad hotel loans for fear of exacerbating the effects on banks of an already difficult residential mortgage market.

Reay made his comments at a panel discussion on the future of the local hospitality industry.

He believes that loans on these San Diego County hotels -- which total roughly 80 with an average size from $5 million to $7 million -- could end up in default. Other hotels could be sold through auctions after the borrower files for bankruptcy protection or fails to repay on the loan.

Throughout California, Reay said there is a "huge shadow" inventory of distressed properties that are yet to hit the default market. Statewide, he estimates that this could total as high as 2,500 hotels.

A recent Atlas Hospitality survey found that San Diego's 13 hotels listed in foreclosure in the three-month period ended Sept. 30 was the most reported by any county in California.

Foreclosed hotel sales activity has picked up because buyer price expectations have strengthened, along with lenders realizing the difficulties in running and operating a business such as a hotel, and wanting to sell versus hold, according to Reay.

Call staff writer Pat Maio at 760-740-3527.


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