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Number of California hotels in default rising
October 12 2010

A larger number of foreclosed hotels were re-sold to new buyers, according to a report from Atlas Hospitality Group.

Highlights
  • Foreclosured hotels will continue to trade at a high frequency through 2011.
  • Lenders are realizing the difficulties in operating a hotel
  • Buyer price expectations have risen.

IRVINE, California – The number of California hotels in default or foreclosed on continued to increase through the third quarter, according to a report from Atlas Hospitality Group.

At the same time, a larger number of foreclosed hotels were re-sold to new buyers. Atlas Hospitality Group said foreclosed hotels will continue to trade at a high rate through Q4 and accelerate into 2011 because lenders are realizing the difficulties in operating a hotel and buyer price expectations have risen.

Atlas Hospitality Group's 3rd Quarter 2010 Distressed California Hotel Survey found that the number of hotels in default or foreclosed on continued to increase through the third quarter.

3rd Quarter 2010 survey highlights include:

  • 529 California hotels are in default or have been foreclosed on, a 10.7% increase from the 2nd quarter 2010 and 71.2% increase over the 3rd quarter of 2009.
  • The number of foreclosed hotels increased 19% from the 2nd quarter from 100 to 119, and is up 91.9% since the beginning of the year.
  • The number of hotel rooms that have been foreclosed on was at 9,239, up 22.2% from the 2nd quarter and up 106.8% since the beginning of the year.
  • The largest hotel in the State to be foreclosed on was the 512-room Holiday Inn in San Jose.
  • Independent hotels accounted for 75% of the hotels foreclosed on.
  • San Diego County leads the State in the number of hotels foreclosed with 13, followed by Riverside County with 12, and Los Angeles and San Bernardino County tied with 11.
  • Los Angeles County leads in the number of defaulted hotels with 52, followed by San Diego County with 41 and San Bernardino County with 37.
  • Of the 119 hotels, only 20 (16.8%) have been re-sold to new buyers. This is up from 12% for the 2nd quarter 2010.

Summary:
As we predicated at the beginning of 2010, the number of hotels in default and/or foreclosure have increased substantially.
In the third quarter we started to at least see an increase in the number of foreclosed hotels re-selling to new buyers. We believe this is a trend that is going to continue through the 4th quarter and accelerate into 2011.

The main reason for the pickup in foreclosed hotel sales activity is twofold:
(i) Lenders are realizing the difficulties in running an operating business like a hotel, and are deciding to sell verses hold; and
(ii) Buyer price expectations have risen.
We are still seeing a disproportionate number of hotels operating under some form of forbearance agreement, which is creating a huge “shadow” inventory of distressed deals that are yet to hit the default market. We estimate that this is as high as 1,000 hotels in addition to the 529 in default or foreclosed.

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