Atlas Hotel Forecast Mixes Hope, Gloom

IRVINE, CA-More California hotels will lapse into default and foreclosure this year, but improving RevPAR may save some of them, according to a forecast by Atlas Hospitality Group. "We are predicting that the number of hotels in default and foreclosure will continue to increase through the first half of 2011 and then we will start to see a leveling off," says Alan Reay, founder and president of Atlas. "This is due to the fact that the economy is improving and RevPARs continue to increase."

The Atlas outlook for distressed hotels this year is part of its "2010 Year-End Distressed California Hotels Survey," which shows that the number of hotels foreclosed on continued to increase while hotels in default fell. The drop in defaults was due mainly to the Extended Stay of America restructure, which involved 109 California hotels, according to the survey.

The survey shows that 465 California hotels are in default or have been foreclosed on, the number of foreclosed hotels increased 15.9% from the third quarter, from 119 to 138, and up 122% since the beginning of the year. Atlas notes that the number of hotels in default decreased by 12.1% in the fourth quarter. However, if the Extended

Stay hotels are excluded from the tally, the number of hotels in default actually increased by 8.6% in the fourth quarter. Reay, in interviews with GlobeSt.com, has explained that rising RevPAR has actually moved some hotels if not out of the distressed category, at least to a less-distressed position. "In addition, for those hotels that have survived this downturn, they are now more likely to escape the default process as they regain profitability," he says. The one issue that is still looming for many hotel owners is that a number of loans are maturing in 2011-2013 that could present issues with finding new funding for refinancing, Reay adds.

Among other highlights in the latest Atlas survey: The number of hotel rooms that have been foreclosed on was at 10,144 at the end of the year, up 9.8% from the third quarter and up 127% since the beginning of the year. The largest hotel in the state to be foreclosed on in 2010 was the 512-room Holiday Inn in San Jose. Independent hotels accounted for 71% of the hotels foreclosed on. San Bernardino County led the state in the number of foreclosed hotels with 17, followed by San Diego County

with 16 and Riverside County with 14. Los Angeles County led in the number of defaulted hotels with 35, followed by Riverside County with 32 and San Diego County with 31.