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alstry (35.71)

Time To Throw In the Towel

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June 29, 2009 – Comments (13)

The number of California hotels involved in a foreclosure action or in default has risen 125 percent in the past 60 days.

Thirty-one hotels have been foreclosed upon, the Irvine-based Atlas Hospitality Group reported Friday.

There are 175 hotel properties in default on their notes right now.

Those properties already lost to foreclosure have largely been in the counties of San Bernardino, Riverside and San Diego.

With 19.6 percent of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County was next with 16.1 percent. San Diego came in third with nearly 13 percent of the foreclosed market share.

Alan Reay, president of Atlas Hospitality Group, said Atlas saw signs the hotel industry may be affected by the housing crisis in California about 18 months ago, and has compiled data over the past year on troubled hotel properties.

Initially, foreclosure action was taken against independent hotels, the hotel brokerage and consulting firm noted. Most were boutique motels in secondary markets.

“Only in the last 60 days have we seen a massive run-up,'' Reay said. “I think hoteliers are getting to the point of not seeing light at the end of the tunnel, and they're starting to throw in the towel.”

http://www.mydesert.com/apps/pbcs.dll/article?AID=/20090627/BUSINESS01/906260348&template=printart

Alstrynomics......Delivering the True Trends as economists tell you what you want to hear.

13 Comments – Post Your Own

#1) On June 29, 2009 at 6:53 PM, AdirondackFund (< 20) wrote:

Gee Alstry, with only 16% of Hotels in foreclosure, we should all be popping the Champagne on how low this number is.  The way you would hear the Press describe it, 16% is a mere bag of shells.  I guess now that all of the Newspapers have closed, the Press has got it's hands on Good 'Ol Time Religion as they parody the Company Line and insist that 'Happy Days are here again". 

Have we not heard this song before?  Wasn't that just the catchiest tune you ever heard, the moment before the world was plunged into World War II?

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#2) On June 29, 2009 at 7:19 PM, AdirondackFund (< 20) wrote:

Happy days are here again,
The skies above are clear again,
Let us sing a song of cheer again,
Happy days are here again!

All together, shout it now,
There's no one who can doubt it now,
So let's tell the world about it now,
Happy days are here again!

Your cares and troubles are gone,
There'll be no more from now on;

Happy days are here again,
The skies above are clear again,
Let us sing a song of cheer again,
Happy days are here again!

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#3) On June 29, 2009 at 8:26 PM, Varchild2008 (84.43) wrote:

If 100% of California's Hotels Foreclose.... We'll... I guess everyoen has to go to Motel 6.  But, no need to worry folks!  They'll leave the light on for ya:-)

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#4) On June 29, 2009 at 8:33 PM, AdirondackFund (< 20) wrote:

http://www.youtube.com/watch?v=gqsT4xnKZPg

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#5) On June 29, 2009 at 8:39 PM, debtRichQuick (< 20) wrote:

We have to be very careful here Alstry...It may be too soon to start licking your chops in anticipation of your supper in 9.09.

The article doesn't specify what the technical defaults are...For example, it is very common for lenders to put occupancy rate requirements in the loan documents....or constant carried covenants. Many measured at year end (12/31) or (6/30). Right now lots of loans are in default, and these covenants are simply being waived as long as an in depth financial analysis shows the borrower is able to handle a negative cashflow situation for at least 36-months.  That is currently what I'm seeing. Some lenders (poor small community banks who are getting hosed for acting like they had CRE expertise) are allowing DSRC to be as low as 1.0x without a cash reserve account being set up to compensate for the covenant(s) being busted.

Lots of hotel owners, even with low occupancy rates, are in decent positions. Those who bought or built late 2006/2007 are hurting. Cap rates on hotels were around 8% back then....incredible considering the risks to return in a down cycle.

The market tells you when a deal is good, value wise. If these hotel owners stuck to basics, they wouldn't have been moving forward when cap rates needed to be around 8% to create a value high enough for them to get a loan large enough to cover building costs.  Just makes no sense. Basically the cost to build is higher than the value of your property based on projected income and historical cap rates...

One other thing is....back then, margins over LIBOR were 1.25 to 2.5% for lender who didn't require a fixed rate....nice loan now eh? two years down the road....you gotta wonder what is going to happen when rates move upwards to reflect the increasing odds of inflation. =)...for now of course, deny deflation is the game the feds play, private speculation will pack lots of folks into treasuries in the coming months...

 HERE COMES THE CPI DATA....=)

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#6) On June 29, 2009 at 8:59 PM, dickseacup (68.33) wrote:

It doesn't matter if all of the capitalist pigs die wallowing in their own filth. Those thrown out of work will be "allowed" to "volunteer" in their communities so they can provide at least some small service for the government that is giving them a subsistence wage.

Once you have a generation used to "volunteering" in exchange for welfare, it won't seem so alien.  Rather like in the 70s it didn't seem so odd for women to go from secondary education into the workforce as unskilled labor, or into higher education, postponing what had been, up until the 60s, the societal norm of assuming TheMostImportantJobKnownToMan(tm), that of raising the next generation. 

By changing the perception, you control the behavior. It generally takes two generations to effect. The first is shocked out of the comfort zone of "the way things are done," while the second comes up thinking the new way is the norm.

Honestly, is it so hard to see that this is what is being done?

Crash the market, transferring the accumulated (paper) wealth of an entire generation (and then some) to the financial industry. Then, saddle the taxpayers with "bailing out" the worst performers in the industry that just raped the middle-class. Bankrupt the remaining industries, those that haven't relocated off-shore or become "multi-national organizations", forcing them to furlough employees en masse. 

At the same time, increase the scope of government-knows-best, "nanny state" policies while strengthening the police powers of formerly non-law-enforcement bureaus (see: HR. 675) and stripping private rights in toto. This coincides with the majority of States  going bankrupt, forcing them to draw down their State Police force (hint: Michigan just laid off 100 State Troopers, effective end of their shift on Sunday. They were forced to turn in their uniforms and badges, so I guess there isn't any expectation they'll be going back to work any time soon). At the same time, local governments are being squeezed and eliminating police and fire staff. Refer back to the mention of HR. 675 and consider why the Congress would feel the need to empower members of the Department of Defense to serve warrants, make arrests and carry firearms. Hrmm? 

The people will have no place left to turn but the FedGov(tm)(r)(c).

Maybe.

 

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#7) On June 29, 2009 at 9:01 PM, alstry (35.71) wrote:

debt,

Things are so bad out there it is amazing few really seem to have a decent perspective.

The only thing keeping this ship afloat is government spending...over half the current GDP based on my analysis.

Half of all Federal Spending is now simply borrowed money...over a quarter of state and local spending is deficit spending.

If government spent anywhere close to the revenues it was generating, we would be in a Depression tommorow morning. 

Health Care would basically shut down.......over ten million government workers would be fired and five million health care workers would lose their jobs as well.

California alone has 300K home health care workers....300K in one state for one segment of health care.  It is insane how much of our economy is simply borrowed money, government spending, and health care....it is absolute insane.

Basically our entire economy is one BIG ponzi scheme that is unraveling quickly.  We move people from being unemployed to welfare so we don't have to count them as unemployed???  WTF is that all about.

Just as Markopolous was sure about Madoff, Alstry is confident about what is about to happen.....

At this point, just sit back, have a bloody, and we will both see what happens.....unless of course a distraction comes our way first.

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#8) On June 29, 2009 at 9:25 PM, AdirondackFund (< 20) wrote:

http://www.youtube.com/watch?v=gqsT4xnKZPg

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#9) On June 29, 2009 at 9:32 PM, JonBarleycorn (70.08) wrote:

alstry

With 19.6 percent of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County was next with 16.1 percent. San Diego came in third with nearly 13 percent of the foreclosed market share.

Do you know if these numbers have been normalized? I could be wrong but, as I recall, San Bernardino County is not only the largest county in California but in the entire nation as well. I think that Riverside and San Diego are right up there too. If put on a per capita or per-unit-area basis, those numbers may not seem quite so remarkable. (Sorry for the italics. It's CAPS doing, not mine.)

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#10) On June 29, 2009 at 10:56 PM, Rasdiff (< 20) wrote:

Love you other than that recipe thing, but

Thirty-one hotels have been foreclosed upon, the Irvine-based Atlas Hospitality Group reported Friday....With 19.6 percent of the total, San Bernardino County leads the state in foreclosed hotels. Riverside County was next with 16.1 percent. San Diego came in third with nearly 13 percent of the foreclosed market share.

13% of 31 is 4, 16.1% is 5, and 19.6% of 31=6. SanDiego has better than 300 hotels. 13 percent of them being forclosed would mean something, but this is saying only 4 total.

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#11) On June 29, 2009 at 11:04 PM, alstry (35.71) wrote:

Alstry hates to be the one always showering on the parade, but this from CR:

 

No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing. Unfortunately, based on today’s market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenuesjump in cap rates has resulted in a massive loss in values. We estimate that values are currently 50-80% lower than at the market’s peak in 2006-2007. (California is down 21.5% year-to-date) combined with the Report this comment
#12) On June 29, 2009 at 11:06 PM, alstry (35.71) wrote:

Sorry:

No market or brand is immune in this downturn. In reviewing the hotels in default or foreclosed on, we found that over 75% of the loans originated from 2005 to 2007. During this period, over 2,500 California hotels either refinanced or obtained new purchase loan financing. Unfortunately, based on today’s market values, we estimate that none of these hotels have any equity remaining. The unprecedented decline in room revenues (California is down 21.5% year-to-date) combined with the jump in cap rates has resulted in a massive loss in values. We estimate that values are currently 50-80% lower than at the market’s peak in 2006-2007.

 

http://www.calculatedriskblog.com/2009/06/report-hotel-values-off-50-to-80-from.html Report this comment
#13) On June 30, 2009 at 3:01 AM, AdirondackFund (< 20) wrote:

@rasdiff

Yes, that is true.  Unfortunately, the annualized rate of Foreclosure will be 10% in San Diego alone.  And this is San Diego we are talking about.  A location that actually attracts a good deal of WINTER TOURISM from places like Canada and New York.  Here in NY we are playing with the 'idea' of a 15 Billion Dollar Deficit, but frankly the subject doesn't come up very often simply because no one wants to look in that direction.  If you like Governments or Businesses that bury their heads in the sand, get yourself some austriches, or move to New York.  It is ASTOUNDING how few people are informed and NO ONE is prepared for what is coming, or even for what has already arrived.  Most are simply hoping to do better next month and get by.  Not a chance....

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