Calif. Hotel Foreclosures Up, Trend May Expand Nationally

With a number of high-profile hotels that have recently gone into bankruptcy or foreclosure, hospitality industry experts are predicting record numbers of hotels and lodging companies will be in distress over the next year or two, according to Travel Weekly.

Hotel foreclosures in California jumped 125 percent in the last two months, according to Atlas Hospitality Group, which specializes in the sale of California hotels. The St. Regis Monarch Beach in Southern California is one example. Thousands more could be close to foreclosure, the company said.

Los Angeles hotel lawyer Jim Butler wrote in his industry blog that the Atlas study suggests foreclosures in California will break records. The risk in California was likely representative of what is going on nationally, he added.

Fontainebleau Las Vegas and W hotels in San Diego and Scottsdale, Ariz., are among the high-profile hotels that have recently gone into bankruptcy or foreclosure.

During the upswing before the financial downturn began, people lent enormous amounts of money thinking the financial good times would not end and would continue on the upswing, said Lalia Rach, divisional dean of New York University’s hospitality school.

But she said demand is not coming back right away, and many hotels cannot meet their debt service.

And it may be that no market is immune. The downturn first hit smaller hotels in secondary markets, but Alan Reay, founder of Atlas Hospitality Group, says that as the hotel economy worsened, all property types are feeling the impact. Morgan Stanley analysts in a recent Bloomberg report put the current hotel loan delinquency rate at 4.7 percent, and said it is likely to reach 8.2 percent by the end of the year.

But NYU professor Bjorn Hanson says that hotel ownership might see increased turnover the coming years, in most cases the same management companies would run the hotels, meaning that most travelers and travel agents won’t see much difference.

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