Foreclosures and Bankruptcies Battering Hotels

Foreclosures and bankruptcies are battering hotels all across America. California was become of the hardest hit states by foreclosures. “Out of 10,000 hotels, 330 have defaulted since 2009″, informed Alan Reay of the Atlas Hospitality Group of Irvine. He also stated that lenders have repossessed 76 Californian hotels, including 500 other hotels across the country since 2008. Most of them, however, are continuing to run.

Paul Heney of Hotel and Motel Management said, “Banks don’t want to take back the keys to distressed hotels in most situations. They seem to be doing everything they can to negotiate with the ownership groups – to ride out the rest of this economic stress.” Heney said that it is highly risky to shut down a hotel. The general belief is “that the day a hotel closes its doors, it is worth 50% of what it was the day before.”

The most expensive hotels are the ones that have been the hardest hit by the recent explosion of foreclosures. Many have even also been shut down. In San Diego, the W. Hotel was handed over to its lenders last September after its previous owners, the Sunstone Hotel Investors, failed to pay a loan of about $65 million.

One month later, a hotel named Wyndham Drake, in Oak Brook, Illinois closed down. When it was closed down, The Drake had “about $3 to $5 million in deferred maintenance payments when it was shut down”, according to Ted Mandigo, a hospitality consultant. He also added, “it was struggling for occupancy and at a negative cash flow.”

“The Ritz-Carlton in Lake Las Vegas, Nevada will close down on May 2nd this year due to a sharp decrease in business”, said the vice president of the chain, Vivian Deuschl. He said there will be a drop in business meetings in many of the upscale hotels after Congress chided th American International Group for over spending (nearly $400,000) at a resort in California after the federal bailout in 2008.

The smaller hotels have not been immune to the financial crisis. The Sunstone Group actually turned over more than 13 hotels to the lenders. The main reason for this is was the decrease in business travel. Last June, Extended Stay filed a bankruptcy protection saddled with a debt of $7.6 billion. It has a chain of 684 hotels and provides services mainly to guests who wish to say for a minimum of 18 nights. Currently, all its hotels are in operation.

But, despite the gloom, William Marks of JMP Securities thinks that the industry has not been permanently scarred. He explained, “We are just experiencing the cyclical nature of the industry. Unfortunately this is a more powerful downturn than normal.”