IRVINE, CA-The number of defaulted and foreclosed hotels inCalifornia continued to rise in the second quarter, climbing by 18%between the first and second quarters and increasing by 132% sincethe second quarter of 2009, according to a new report fromIrvine-based Atlas Hospitality Group. The survey shows that 478California hotels are in default or have been foreclosed upon, butAtlas president Alan X. Reay tells GlobeSt.com that the companybelieves the true number of distressed California hotels is muchhigher, with "over 1,000 properties operating under some form offorbearance agreement."

Of the 478 properties in default or foreclosure, the number ofhotels that have been foreclosed upon is 100, according to theAtlas survey, up from 79 in the first quarter. Reay says thatalthough banks and special servicers are still practicing an"extend-and-pretend" approach to troubled properties, there aresigns that both are turning to foreclosure more readily, especiallyspecial servicers, who are "being more forceful in taking backhotels," he says.

Although the pace at which lenders are filing notices of defaultappears to be on the rise, Reay notes that Atlas expects thedefault numbers to decline soon when Extended Stay emerges frombankruptcy because Extended Stay hotels account for about 20% ofthe properties on the Atlas default list. The recent bankruptcyfiling of Florida-based Innkeepers USA will not likely have anyeffect on the default numbers in California, although Innkeepershas 15 hotels here, he says. Reay explains that the Innkeepersproperties in California probably won't join the ranks of REObecause the Florida-based company will likely emerge eventuallyfrom bankruptcy in much the same way as Extended Stay.