Hotels Continue to Enter Lists of Los Angeles Foreclosures

by Simon Lindsay on Foreclosure Crisis

The continued entry of hotels into listings of Los Angeles foreclosures is another indication that the claws of foreclosure continue to reach out into all areas of the real estate sector.

Falling occupancy rates and dropping room rates have cut down hotel revenues sharply, leaving hotel owners and developers with little money to pay their loans. They could not turn to loan refinancing to solve their cash flow problems because lenders stopped writing loans for most borrowers.

During the first three months of this year, seven hotels in Los Angeles have been foreclosed upon and another 38 hotels were delinquent on their loans, according to California hotel broker Atlas Hospitality Group.

Atlas analysts also reported that the number of hotels that have become foreclosures for sale in California have risen to a total of 79 hotel properties, an increase of more than 27 percent from the 62 hotels foreclosed in the first three months of 2009. The number of hotels that have defaulted on their loans but not yet foreclosed has increased by almost 7 percent to 327 hotels.

In Riverside, nine hotels entered foreclosure, while in San Bernardino, eight hotels were foreclosed upon.

Just like foreclosures in the residential sector, unemployment also drove Los Angeles foreclosures in the hospitality sector. As the number of jobless people increased, the number of travelers and tourists checking into hotels decreased. The 12.5-percent unemployment rate of California sharply reduced the number of people able to travel to other places.

According to Atlas president Alan Reay, the states with the most number of struggling hotels are the same states with high rates of residential foreclosures. He explained that housing was a major driver of economic activity in these states.

Reay also reported that revenue per available hotel room in the first two months of 2010 fell by 3.5 percent on the average compared to revenues in the first two months of 2009. He added that hotels in Central California suffered the sharpest declines in revenues compared to hotels in the northern areas of California.

The report from Reay and his Atlas analysts also estimated that over 1,000 hotels in California have been operating under forbearance contracts.

The one bright spot in the surge in hotel foreclosures is the interest of foreign investors from China and other Asian countries in acquiring the distressed hotels. These foreign investors are looking at these Los Angeles foreclosures as great investment opportunities.

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