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Jingle Mail Goes Commercial (CRE): Owner Of Upscale San Deigo W Hotel Walks Away From Mortgage

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.


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Reader Comments (28)

REIT buys back commercial propertes it sold 5 years ago. At a substantial discount.

Jun 7, 2009 at 9:23 PM | Registered CommenterDailyBail

Will the Bond Market Destroy The Stock Rally? Watch out green shoots.

Jun 7, 2009 at 10:54 PM | Registered CommenterDailyBail
The 10 year has been screaming higher, goodbye low mortgage rates and hello higher rates. this should kill the markets but its being ignored by the drunk bulls. Constant Negative Broadcasting Channel (CNBC) is not all over this for some reason.
Jun 8, 2009 at 1:12 PM | Unregistered CommenterSell Short
@Sell Short

I agree with you completely. The bond market and rising rates are going to kill the housing market. Stocks have peaked I think. But what do I know.
Jun 8, 2009 at 1:14 PM | Registered CommenterDailyBail
The Obama administration has put out the official word: Starting soon, first-time home buyers nationwide will be able to turn their $8,000 federal tax credits into cash for use at closing if they use Federal Housing Administration mortgage financing.

Jun 9, 2009 at 5:45 AM | Registered CommenterDailyBail
Free Money Beckons at Bank of the Living Dead: Jonathan Weil

Jun 9, 2009 at 5:46 AM | Registered CommenterDailyBail
Jun 9, 2009 at 5:51 AM | Registered CommenterDailyBail
Jun 9, 2009 at 5:52 AM | Registered CommenterDailyBail
In a step that would substantially increase the price tag for Bernard L. Madoff’s long-running Ponzi scheme, lawyers for a group of his victims are asking a federal bankruptcy judge to reject the way their losses in the fraud are being calculated.

Jun 9, 2009 at 5:55 AM | Registered CommenterDailyBail
Jun 9, 2009 at 5:55 AM | Registered CommenterDailyBail

Sarah Palin's speech delivered in Anchorage on Wednesday -- the one in which she declared "screw political correctness" and wondered why "we have to pussyfoot around our troublesome foes" -- repeatedly lifted from an article written four years ago by Newt Gingrich and Craig Shirley without attribution.
Jun 9, 2009 at 5:58 AM | Registered CommenterDailyBail
Jun 9, 2009 at 6:00 AM | Registered CommenterDailyBail
Wow. What a shocker. Banks still suck at risk management. Nothing has changed.

Jun 9, 2009 at 6:02 AM | Registered CommenterDailyBail
Jun 9, 2009 at 6:06 AM | Registered CommenterDailyBail

Motorists unable to afford payments on pricey cars and gas-guzzling sport utility vehicles in this recession are turning to a time-tested financing solution: matches.

Insurance cheats are torching their vehicles in remote deserts. They're pushing them off cliffs. They're sinking them in lakes or ditching them in Mexico in the hopes of getting their policies to pay off, fraud investigators say.
Jun 9, 2009 at 6:09 AM | Registered CommenterDailyBail

The need to have a AAA rating to be eligible “for government programs raises the specter of rating shopping,” Andrew Kimball, head of the global structured finance business at Moody’s Investors Service, said during the company’s investor day today. “Those programs don’t differentiate on the quality of the rating. Rating shopping becomes a problem.”
Jun 9, 2009 at 6:26 AM | Registered CommenterDailyBail

The Federal Reserve has backed off from seeking a new tool to forestall inflation, refraining from asking Congress for the power to issue its own debt, according to a person familiar with the matter.
Jun 9, 2009 at 6:29 AM | Registered CommenterDailyBail

"One of the messages I had -- because we need to build trust and confidence in our number one creditor -- is that the budget numbers that the US government has put forward should not be believed," Kirk said.

"Congress is actually going to spend quite a bit more," he said.
Jun 9, 2009 at 6:31 AM | Registered CommenterDailyBail

Negative convexity at the Fed
Posted by Tracy Alloway on Jun 09 08:49.

Negative convexity in relation to the US Federal Reserve is something that’s been discussed on this blog before. It’s rather interesting then, that just as talk of an impending convexity event heats up, the Fed appears to be shying away from something that might have helped to ease some of its potential convexity pain — recapitalising by issuing its own debt.*

Like MBS investors, the Fed is vulnerable to rising or falling mortgage rates. When rates start creeping up, homeowners tend to be reluctant to refinance their loans, leaving the Fed to finance the mortgages at interest rates higher than the mortgages’ yield. It’s basically a negative carry scenario. That scenario could eventually impinge on the central bank’s cash flows — potentially causing cash flow losses and a need for recapitalisation of the Fed.
Jun 9, 2009 at 6:32 AM | Registered CommenterDailyBail
"Motorists unable to afford payments on pricey cars and gas-guzzling sport utility vehicles in this recession are turning to a time-tested financing solution: matches."

LOL! Back in the '80's, I remember my dad telling me one time that a building had burned down because "the insurance wires probably got crossed up." Even as a seven year-old, I thought this was hilarious. Your quote^ brought back some good memories. Looking back, I'd say I got some grade-A education in the passenger seat of that old pickup truck.
Jun 9, 2009 at 12:57 PM | Unregistered CommenterJames H
From San Diego to San Francisco..even in Marin County, the highest per capita income in the State, are getting buried across the Board. At the State and County levels...the sweetheart, lifetime Cadillac pension and healthcare benefits, all carried off balance sheet..await any sign of recovery for hope. Sadly, the absolute decline of 14.1 % in tax revenue this compared to last year, ensure California governments will soon lose any ability to manage the State out of this deep abyss. Bankrupties, foreclosures and "walk aways" are now common place for job creators...can the State be next ??
Jun 11, 2009 at 3:14 PM | Unregistered CommenterMark Hill

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