JEFF QUACKENBUSH – THE NORTH BAY BUSINESS JOURNAL

August 31, 2023, 4:43PM – Updated 31 minutes ago

Two Wine Country hotels with 222 rooms altogether are now under the ownership of the lender after there were no takers in recent foreclosure auctions to cover over $80 million in outstanding debt on both relatively new facilities.

After multiple postponements, the 90-room Cambria Napa Valley hotel at 320 Soscol Ave. in Napa came to auction outside the Napa County courthouse on Aug. 25 with an opening bid of $40 million. The 132-room Cambria Sonoma Wine Country hotel at 5870 Labath Ave. in Rohnert Park came up for bid at $19 million earlier that day. Both went back to the lender, an affiliate of New York-based Madison Realty Capital.

The private-equity firm had refinanced a construction loan on both properties in April of last year, providing $72 million to affiliates of Stratus Development Partners, the Southern California-based developer and owner at the time. The new loan went into default at the end of March this year, with an outstanding balance at that time of $1.7 million, according to public records.

The first trustee’s sale dates for recovery of $80.7 million outstanding on the loan secured by the Napa and Rohnert Park hotels were Aug. 4 and Aug. 11, respectively.

A spokesperson for Madison Realty Capital, ranked by multiple trade journals as one of the nation’s largest providers and managers of private investments in commercial real estate, said the firm declined to comment on the auction of the Wine Country hotels and the funding environment for lodging properties.

Principals at Stratus couldn’t be reached for comment after the auctions.

Construction of the Napa Cambria hotel started in 2018 and it opened in August of 2021.

The Rohnert Park hotel opened in May 2020, just two months after state and county pandemic stay-at-home orders forced hotels to only house “essential” workers.

Alan Reay, president of Atlas Hospitality Group, a broker of California lodging properties, said the opening bid amount for the Cambria Rohnert Park hotel in particular was below what it would cost to build it.

“However, buyers today are more focused on the (net operating income) and cash flow, and my records show that the (Rohnert Park) hotel only had a little over $1 (million in net operating income),” Reay said. “This is why you probably did not have any other buyers showing up.”

The delinquency rate of mortgages on lodging properties shot up in the first months of the pandemic from around 1% of loans to nearly 10% and has trended down since, reaching about 8% in the first quarter of this year, according to commercial property financing analytical firm Trepp.

By comparison, the next most at risk category of commercial property loans are for office space, with a default rate ticking back up to almost 4%, Trepp reported.

This credit crunch also has greatly slowed the market for buying and selling lodging properties, Reay said. Atlas’s recently released midyear hotel property sales report showed a 53% drop in California transactions from the first half of 2022.

Jeff Quackenbush covers wine, construction and real estate. Reach him at jquackenbush@busjrnl.com or 707-521-4256.