California Hotel Foreclosures Climb as Unemployment Cuts Travel

April 1 (Bloomberg) -- Hotel foreclosures in California climbed 27 percent in the first quarter from a year earlier as unemployment cut business travel.

Foreclosures, including the 469-room Los Angeles Marriott Downtown, rose to 79 properties from 62 in the first three months of 2009. Defaults increased 6.5 percent to 327, Irvine, California-based Atlas Hospitality Group said in a statement. The company specializes in selling hotels.

The U.S. lodging business is struggling with declining room rates and falling occupancy in the wake of the deepest recession since the 1930s. In California, 12.5 percent unemployment reduced business travel budgets and cash flow to hoteliers.

“If we look throughout the U.S., states like Florida, Nevada, Arizona and California were tied very closely to the housing boom and that was a big driver of the economy there,” Atlas President Alan Reay said in a telephone interview. “Hotels that are suffering the most are in areas with high unemployment.”

Riverside, California, outside of Los Angeles, had nine hotels in foreclosure in the first quarter. San Bernardino was home to eight and Los Angeles had seven, Atlas said. An additional 38 Los Angeles hotels were in default, according to Atlas.

Revenue per available room, or revpar, at California hotels dropped an average of 3.5 percent during the first two months of this year compared with the same period in 2009, Reay said. Some markets in the northern part of the state reported increases, while central California continued to decline and properties along the coast and in Los Angeles were little changed, he said.

Debt Burden

“Most hotels that have been in trouble will still struggle through 2010 because of the amount of debt they have,” said Reay. “Even with increased revenue, they can’t cover their debt service.”

He estimates more than 1,000 hotels in the state are operating under forbearance agreements, where lenders have modified the loans that are starting to come due.

“One bright spot in California is that there is a tremendous amount of interest from overseas buyers, particularly from Asia and China,” he said. “They are seeing this as a great bright buying opportunity.”

--Editors: Sharon L. Lynch, Josh Friedman

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To contact the reporter on this story: Nadja Brandt in Los Angeles at nbrandt@bloomberg.net.

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net.