Hotel Foreclosures: California Resorts to Follow Phoenix

My travel roundup on Monday mentioned the trouble metro Phoenix resorts are facing — foreclosure. While Phoenix’s hotel industry is imploding, California’s resorts also seem to be crumbling.

According to a report by GlobeSt, the Golden State’s hotel foreclosures have jumped 125 percent in the last two months. Also more than 500 resort owners and developers have defaulted on their property taxes already, suggesting a shortage of cash flow or other inability to pay. The Atlas Hospitality Group says more than 200 California hotels are already in some stage of foreclosure, and there are only more on the way.

While some hotels have been in trouble for a while, Atlas says many affected properties are new to the struggle (although the majority tend to be independently owned, many are also franchised properties.). About 2,500 hotel loans were made from 2005 to 2007, at the height of the market. Now as values have gone down, debt has only mounted on owners’ backs and they can’t access credit to ease that burden.

I don’t know how all hotel loans are structured, but I think we will probably see a peak of foreclosures this year, with the numbers finally easing in 2010. Although the commercial and residential real estate markets can be markedly different, they still share the same lenders. Those lenders are not eager to hand out deals or cut debt, which means everyone can expect many more foreclosure sales to come.

Now let’s just hope investors can find those sales.