Welcome to the Hotel California
In that regard, I bring your attention to a story that was published just last week in Hotel News Now. Aside from a massive budget shortfall, the hotel industry in the Golden State is also struggling to stay afloat.
The story was entitled California to see record number of hotel foreclosures.
It read:
The number of California hotels in default or foreclosed on jumped 125% in the last 60 days. The state now has 31 hotels that have been foreclosed on and 175 in default, according to California-based Atlas Hospitality.
Initially, the wave of distress in California was seen by the smaller, non-flagged hotels in secondary and tertiary markets. As the hotel economy worsened, we have seen it impact all property types. The properties range from the luxurious St. Regis Monarch Beach Resort in Dana Point to the more economical Extended Stay and Red Roof Inn chains.
No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing.
Unfortunately, based on today's market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenues (California is down 21.5% year-to-date) combined with the jump in cap rates has resulted in a massive loss in values.
We estimate that values are currently 50-80% lower than at the market's peak in 2006-2007. (Emphasis mine.)
Now, if that doesn't spell trouble for commercial hotel REITs, nothing does.
As for the state of California, all I can say is I'm haunted by something a teacher said to me a long time ago. . .
"Steve," he said, "if you want to know what's going to happen next, just keep your eye on California."
"Everything," he warned, "happens there first."
That's why I believe this is a trend that is just getting started as "jingle mail" now moves into commercial real estate.
By the way, my Hawaiian contact tells me that hotels on the Big Island are running at about 25% occupancy, which, if true for all the islands, would be devastating. Meanwhile, just last month, the Sheraton on the Big Island went into foreclosure after the resort's owner defaulted on its mortgage.
Your bargain-hunting analyst,
Steve Christ, Investment Director
The Wealth Advisory
P.S. Struggling hotel REITs are only one part of the rickety tower in commercial real estate these days. Unfortunately, it's only a matter of time before the whole sector comes tumbling down. But that doesn't mean you have to be just a bystander to it all. I've identified 4 ways to earn big profits as it happens. To learn more about these opportunities, click here.
From: Wealth Daily (wd-eletter@angelnexus.com)
Sent: Thu 7/09/09 5:00 PM
