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Hotel Seller's Study Says More California Hotels Are in Financial Distress

July 19, 2010

As Anaheim commercial real estate loan modification attorneys, we were interested to see a recent item in the Orange County Register's Lansner on Real Estate blog. The July 15 post reported on a study saying the number of California hotels whose mortgages are in "high financial distress" rose by 18% in the second quarter of 2010. High financial distress means the mortgage is in default or foreclosure. The information comes from Atlas Hospitality Group, a company that sells hotels in California. The blog noted that past reports have suggested firmer room rates and fewer vacancies at hotels, but that trend is not reflected in the report. This post comes on the heels of a similar July 14 post saying one in four Orange County office properties are still empty.

In all, the report said, the rate of distressed properties was 132% higher than it was in the second quarter of 2009. This large number is not a surprise to people who have followed the commercial real estate market crash. Atlas said that in Orange County, four hotels were owned by banks and 19 were in default. That's up from two foreclosed properties and 14 in default in the first quarter. Those numbers also represented a big jump from the second quarter of 2009, when one hotel was in foreclosure and nine were in default. Riverside County had the most foreclosed hotels in the state, at 11. The report suggested that the real number of distressed properties may be much higher, with more than 1,000 California hotels operating on "some kind of forbearance agreement." Interestingly, however, it noted that only 12 of the 100 foreclosed properties in the state had been resold by banks.

Our San Bernardino County commercial real estate loan modification lawyers suspect that banks would love to sell more properties -- if they could. Having followed the commercial real estate market throughout the year, we believe banks are having a hard time selling foreclosed properties for the same reasons that their former owners had trouble paying the mortgages. The bad economy means commercial property owners are having a hard time filling vacancies in their buildings, which in turn means they aren't making the revenue they need to pay their loans. This, in turn, means there just isn't a lot of money in commercial real estate right now. The bad economy also depresses commercial real estate prices, which could attract investors -- but only those who are willing to take on some risk.

If you're a commercial real estate investor looking for a way to avoid default an foreclosure, you should call Howard Law PC for help. We represent commercial property owners who are seeking any type of changes to their loan, including extensions as well as changes to loan structure or financial terms. As this study shows, banks have good reasons to stay out of the commercial real estate business -- yet some lenders don't seem interested in negotiating for a mutually beneficial change to the loan. Our Los Angeles commercial real estate loan modification attorneys have worked in this field throughout the residential mortgage crisis and have worked with commercial investors throughout 2010. We prefer to negotiate with lenders whenever possible, but if appropriate, we are not afraid to follow through in court.

If you're stuck with a commercial real estate loan that your property can no longer support, Howard Law can help. To set up a free consultation, contact us through the Internet or call toll-free at 1-800-872-5925.