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IRVINE, CA-The number of California hotels that are in default or have been foreclosed on jumped dramatically in the third quarter of 2009, according to a new report by Atlas Hospitality Group, an Irvine-based consulting and brokerage firm. The Atlas analysis shows that the number of hotels that were foreclosed on rose 213%, from 15 to 47 since the beginning of the year, while the number of hotels in default increased 391%, from 53 to 260.

The Atlas report further shows that California has 2,779 rooms that have been foreclosed on, up 455% for the year; the 27,893 California hotel rooms in default represent an increase of 426% since the beginning of the year.

The report, which summarizes the California REO hotels by county and by room count, follows Atlas forecasts earlier in the year that said the state’s hotel industry was facing a wave of foreclosures as a result of the recession and financing woes facing their owners. Alan Reay, president of Atlas Hospitality Group, said earlier this year that the conditions in the state’s hotel market represented a “perfect storm” of circumstances that portended “a very bleak outlook” for California’s hotels.

That forecast has been borne out by the dramatic rise in foreclosures and defaults, a trend that is expected to continue. The hotel market’s troubles also have been reflected in events like San Clemente-based Sunstone Hotel Investors’ decision earlier this year not to make the June 1 payment on its $65 million mortgage for the W Hotel in San Diego. That decision reflected a “significant and continuing deterioration in demand for luxury lodging,” the REIT said at the time in choosing what it termed an ” elective default” on the mortgage. Sunstone also was involved in another deal illustrating changing market conditions: the $19.3 million sale of its 292-room Marriott Riverside hotel in Riverside to San Diego’s Pinnacle Hotels group, a price that at the time ranked among the lowest paid per-room for a full service Marriott in the US, according to Atlas.

The new Atlas report shows that the largest hotel to be foreclosed on in California is the 400‐room St. Regis Monarch Beach Resort in Dana Point. The California county with the most REO hotels is Riverside with nine properties totaling 252 rooms.

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