More hotels facing default

The slump in the hospitality business -- made worse by the real estate crash -- has led to dramatic increases in the number of hotels that can’t pay their bills.

About 250 hotels are in default or foreclosure in California, according to the Irvine consulting firm Atlas Hospitality Group.

Los Angeles County has the highest number of troubled hotels: 27, including the 469-room Marriott in downtown L.A., according to a new Atlas report.

With the trend expected to continue throughout 2009, as many as 500 properties could be in default by year’s end, Atlas President Alan X. Reay said.


Hotels are facing a double-whammy: a slowdown in the hospitality business and the devastation in the real estate market. As a result, owners can’t easily sell their properties if they run into trouble.

Only 49 California hotels changed hands during the first six months of this year, down from 100 a year earlier, according to Reay, who wrote the report. At the same time, the number of hotels on the market jumped 53%. That’s a record low number of sales and a record high number of hotels that are on the block.

“It’s really a perfect storm for California hotels right now,” Reay said. “If we continue at this pace, it will take 10 years to sell all the hotels on the market. And that is if there aren’t more hotels that become available for sale.”

There were 941 hotels still on the market in late June, meaning that in the first half of the year more than 19 hotels were left unsold for every one that was sold. The typical ratio is closer to 2 to 1, Reay said. To move forward, he said, there needs to be a complete re-pricing of the market.

In Los Angeles County, the number of hotels sold plummeted 91% in the first half of 2009.

“If there’s any silver lining in this report,” Reay said, “it’s that this is going to be the best buyer’s market in the last 20 to 25 years.”