Los Angeles Hotels Take Beating
Los Angeles hotel owners are facing a tough time, with many struggling to pay their debts. Relevant’s Grant King is one such owner, with a lender seeking to sell the equity interests in the Dream Hollywood hotel, which is owned by a company connected to Relevant. A foreclosure auction is scheduled for mid-October, with the lender, LCP Group, alleging that Relevant owes more than $30 million in unpaid debt connected to the 10-story, 178-key hotel at 6417 Selma Avenue.
Struggles of Hotel Owners
King stated that Relevant is working on a loan recapitalization and extension with the lender. If he loses the hotel, it wouldn’t be the first time. The Tommie and Thompson Hollywood hotels — both sporting different names now — were under Relevant’s ownership when they went to lenders two years ago. King isn’t the only owner in a jam, as Queensgate Investments defaulted on the debt connected to the Freehand Los Angeles, a hotel-meets-hostel downtown, to the tune of $71 million and too faces foreclosure.
Challenges Facing Los Angeles Hotels
Among the pitfalls that are keeping would-be investors out of L.A. is Measure ULA, the so-called “Mansion Tax,” that goes beyond mansions and has led to fewer commercial trades. Then there’s homelessness and crime, a related dip in tourism hitting revenue, and a $30 minimum wage for hotel workers in the City of Los Angeles adding to costs. An uncertain economic environment marked with high interest rates is a kicker. Atlas Hospitality Group’s Alan Reay told The Real Deal that several Los Angeles hoteliers are receiving notice of defaults, and investors are looking at the city with disdain.
Running Out of Time
We’ve been following the Rockwood Capital-owned Santa Monica Clock Tower for a few months now. Back in May the debt connected to what was once the city’s tallest skyscraper went to special servicing. By July the property saw its value slashed and Rockwood appeared ready to surrender. Fall arrives with Rialto Capital, the special servicer, which acts on behalf of the lender, suing a company connected to Rockwood, claiming the company defaulted on about $25 million in debt.
Now to the Valley
The Encino Financial Center, a 13-story office building owned by Lowe Enterprises, received a recent reappraisal that reduced its value by almost a third. The downgrade came after its loan landed in special servicing due to imminent monetary default, according to Morningstar Credit and Trepp. The about 230,000-square-foot office building at 16133 Ventura Boulevard is now valued at $48.8 million compared to $72 million at loan issuance in February 2015.
Earnings Season
Earnings are near. Los Angeles-based, publicly traded, real estate investment trusts Hudson Pacific Properties, Kilroy Realty and Rexford Industrial Realty have announced dates for their third quarter earnings calls in October and November. Last quarter, Hudson Pacific reported an $83 million loss; Kilroy reported an increase in income to $68 million and announced a $40 million Santa Monica office sale; and Rexford reported an increase in income to $113 million.
Conclusion
The Los Angeles hotel industry is facing significant challenges, with many owners struggling to pay their debts. The city’s hotels are being affected by a range of factors, including Measure ULA, homelessness and crime, and high interest rates. As the industry continues to struggle, it will be important to monitor the progress of hotel owners and the impact of these challenges on the city’s economy.
FAQs
Q: What is happening to the Dream Hollywood hotel?
A: The lender, LCP Group, is seeking to sell the equity interests in the Dream Hollywood hotel, which is owned by a company connected to Relevant, due to unpaid debt of over $30 million.
Q: How is the Los Angeles hotel industry being affected by Measure ULA?
A: Measure ULA, the so-called “Mansion Tax,” is leading to fewer commercial trades and making it harder for hotel owners to pay their debts.
Q: What is the current state of the Rockwood Capital-owned Santa Monica Clock Tower?
A: The property is facing foreclosure, with Rialto Capital, the special servicer, suing a company connected to Rockwood for defaulting on about $25 million in debt.
Q: How is the Encino Financial Center being affected by the current economic environment?
A: The 13-story office building owned by Lowe Enterprises has seen its value reduced by almost a third due to a recent reappraisal, and its loan has landed in special servicing due to imminent monetary default.
Q: What can be expected from the upcoming earnings calls of Los Angeles-based real estate investment trusts?
A: The earnings calls of Hudson Pacific Properties, Kilroy Realty, and Rexford Industrial Realty may provide insight into the current state of the Los Angeles hotel industry and the impact of the challenges facing hotel owners.
