Are Hotel Foreclosures the Next To Check Out?

Why buy a house when you can buy a W Hotel? Yes, you can actually buy a W Hotel…or, if you’re looking for something smaller, there’s a “Mondrian Boutique Hotel” available…and this is precisely the problem.

As more and more homeowners are deciding to forfeit their homes to lenders, industry analysts are also reporting that hotel owners are beginning to “follow suit” by the hundreds. Of course, this shouldn’t come as that much of a surprise. The current economic climate has resulted in colossal depreciation of hotels to values far less than what many owners still owe — (sound familiar?) In fact, Real Capital Analytics reports that the cumulative loan value of non-casino hotels has reached a staggering $16.8 billion on 1,000 properties around the country.

Of course, hotels aren’t the only businesses that are struggling to pay their mortgages, so why are they the ones that seem to be receiving so much attention? Unfortunately for hotel owners, their loans are typically included with commercial mortgage-backed securities. As a result, several investors own these bonds, which further complicates restructuring the current loan. And in the end, these complexities often make it difficult for the property to stay in the hands of the same owner.

Hotels add another layer of complexity in inherently unpredictable revenue streams. Unlike malls, hotels don’t have the luxury of even a semblance of consistent revenues. Yes, I know retail is hurting and stores are closing every day — putting huge financial burdens on mall owners. But retail benefits from long term leases and at least provide some security — and, hopefully, sustainability. Hotels, on the other hand, are dealing with dramatically high vacancy rates and can literally “bleed to death overnight”.

Where The Same Old Story Turns A Little “Upside Down”

An interesting reality of today’s hotel financial plight is that it’s effecting larger hotels and chains proportionally higher than “independents”. Historically during economic downturns, the hotels that are hit the hardest are those that have fewer resources to “hang on”. But in this economy, that’s not the case and here’s why…

Abundance + 2005 X Acquisitions = 2009

Ironically, for the publicly traded hotels caught in this mess, “having”, which kept them afloat in recessions past, became “their” Achilles’ heel.  Need I say more than buying a hotel circa 2005″? Publicly traded hotel owners decided to grow during this era of exuberance. Half a decade later there’s a pile of debt.

It only seems fitting to note that on this list of distressed hotels is the infamous, but iconic, Watergate; once a symbol of luxury and power in the Nation’s Capitol, it received no bids at an auction last month with a $25M opening price. I would’ve put a bid in, but I’m waiting for The Washington Monument.

Licensed in Virginia, Maryland, and D.C., Kevin Koitz, with The Koitz Group @ Long and Foster RE specializes in Washington DC real estate and surrounding luxury communities in Montgomery County Maryland. Visit his Bethesda Real Estate guide or his Georgetown Real Estate page to get a flavor for some of DC’s finest areas.