Hotel foreclosures in California more
than tripled in the first nine months of this year as business
travelers and vacationers cut spending.

Foreclosures including the 400-room St. Regis Monarch Beach
resort in Dana Point climbed to 47 in January through September
from 15 a year earlier. Properties in default more than
quadrupled to 259, Irvine, California-based Atlas Hospitality
Group said in a statement. Atlas specializes in selling hotels.
The survey didn’t include states other than California.

Declining occupancy rates and a dearth of credit for
refinancing loans obtained during the U.S. real estate boom are
squeezing the travel industry. Loans secured by more than 1,500
hotels with a total outstanding balance of $24.5 billion may be
in danger of default, according to Realpoint LLC, a credit
rating company that tracks the performance of securities tied to
mortgages on commercial property.

“Urban areas are dependent on a mix of business,
convention and leisure travel,” said Robert Mandelbaum,
research director for PKF Hospitality Research in Atlanta.
“There’s been a tremendous decline in business and convention
travel.”

Lodging owners are struggling after adding rooms and
properties from 2004 to 2007, when financing was easy to come by
because banks could bundle loans into commercial mortgage-backed
securities and sell them on to investors. About $83.4 billion in
hotel-backed securities were issued in those years, according to
Realpoint.

Trouble in L.A.

“We see higher default numbers in L.A. County and San
Diego County because of the sheer volume of hotels,” Alan Reay,
president of Atlas Hospitality, said in a telephone interview.
“A lot of new product has been added in those counties.”

More than 70 percent of troubled California hotel loans
originated between 2005 and 2007, Reay said. Nearly 2,500 of the
state’s hotels were financed or refinanced during those years,
accounting for about 25 percent of the entire supply, he said.

Occupancy in the top 25 U.S. travel markets fell to 61
percent in the first eight months of the year from 69 percent a
year earlier, according to Smith Travel Research in
Hendersonville, Tennessee.

Riverside, California, outside of Los Angeles, had nine
hotels in foreclosure through September. San Bernardino was home
to six and Los Angeles had five, Atlas said.

Another 28 Los Angeles hotels were in default, according to
Atlas. Occupancy there dropped to 65 percent in January through
August from 75 percent a year earlier, according to Smith
Travel.

“Los Angeles is a gateway city,” Mandelbaum said in a
telephone interview. “Prior to 2009, we were enjoying the
influx from foreign travelers. That also has tapered off due to
this global economic decline.”

San Diego had 26 hotels in default and San Bernardino had
23, Atlas said.

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