Buy low-sell high becomes "buy high, walk away with nothing" for Sunstone Properties. Jingle mail strikes at the heart of commercial real estate.
It was only a matter of time. Commercial property developers and owners are no different from houseowners. When it makes sense financially to walk away from a loan, be assured they will be gone. And today we have more proof that size and reputation are no obstacles when choosing to send the keys back to the mortgage holders.
Sunstone Hotel Investors, Inc., a publicly traded REIT and owners of the chic San Diego W Hotel, announced today they plan to forfeit the 258-room luxury property back to the lien holders in lieu of making any further payments. The property was purchased in 2006 for $96 million and has a current loan balance of $65 million. The owners say it is worth substantially less than $65 million, and after failing to reach a deal with creditors, they have chosen to give up the property.
From the WSJ:
Sunstone Hotel Investors Inc. intends to forfeit the 258-room W San Diego to its lenders after its efforts to reach a compromise on the luxury hotel's $65 million securitized mortgage failed.
Sunstone, a real-estate investment trust that owns 43 hotels, bought the W for $96 million in 2006 from a group led by developer Gatehouse Capital Corp. Since then, the slumping performance of the W San Diego and the broader hotel market has made supporting that mortgage a challenge for Sunstone.
Foreclosures and forfeitures of hotels are becoming commonplace in this recession, though a public REIT turning over a high-profile, luxury property still is rare. Default rates on securitized mortgages backed by hotels have risen sharply as travelers have cut back, occupancies and revenues have tanked and, subsequently, hotel owners have run into difficulty making their debt payments. To wit, 3.16% of securitized mortgages backed by hotels now are delinquent on payments as compared to just 0.44% at this time last year, according to Trepp LLC.
Read the rest of the article HERE.