Hotels squirm as debt pressure mounts

Sunstone Hotels (SHO) Performance

A big hotel near Hartsfield-Jackson Atlanta International Airport may be about to change hands — a harbinger for the industry as more and more hotel owners find themselves deep in debt and unable to avoid drastic financial negotiations.

The 387-room Atlanta Renaissance Concourse may soon belong to Massachusetts Mutual Life Insurance Co. after owner Sunstone Hotel Investors Inc. (NYSE: SHO) notified investors Nov. 4 it had not made a $5 million payment to Mass Mutual and had defaulted on a $246.3 million loan that is secured by the Renaissance and 10 other hotels.

Industry watchers say that the rate at which loans secured by hotels are falling delinquent is accelerating.

“The number of hotel owners that are finding themselves in a position of not being able to generate enough profit to meet debt service is growing,” said Mark Woodworth, president ofPKF Hospitality Research, a hospitality research firm based in Atlanta. In about a year, Woodworth expects the industry will see record levels of restructuring, foreclosures and bankruptcies.

Sunstone is not alone in its loan trouble.

Atlanta-based Lodgian Inc., one of the nation’s largest independent hotel owners and operators, reported Oct. 2 it was giving back seven hotels, none of which are in Atlanta, because it had defaulted on two separate loans, all of which were secured by those hotels.

Lodgian (Amex: LGN) stopped servicing a $16.3 million loan to Wachovia, now owned byWells Fargo & Co. (NYSE: WFC), on the 243-room Crowne Plaza in Worcester, Mass., it said, because in the past 12 months, cash flow from the hotel was not covering the debt on the property.

Annual net operating income for the other six hotels, securing a loan from Merrill Lynch & Co. Inc., was $2.4 million, Lodgian reported, while the annual debt service was nearly $4 million.

Click here for full report from Atlanta Business Chronicle…