California’s hotel market was late showing up to the foreclosure party but their arrival was inevitable. The median price per room is down 30% from 2008 and 38% from 2007. Most hotels presently on the market are still priced too high to sell and Atlas Hospitality Group another 10-20% drop in 2010.
Lenders in 2009 continued to delay processing the foreclosure of distressed hotels, opting instead to extend the forbear in order to defer the reporting of their losses. Although REO hotels made up 73% of the 2009 sales transactions, the majority of distressed hotels have still not been sold.
Foreclosures will dominate the market in 2010 and that is welcome news to developers who turn a profit by converting struggling hotels into condos and/or timeshares. Conversion happens to prime coastal hotels during every recession.
Sources: California Hotel Sales Survey Year-End 2009 and First Tuesday Journal