Decision points to ongoing weakness for Bay Area hotels

By GEORGE AVALOS | gavalos@bayareanewsgroup.com | Bay Area News Group

PUBLISHED: July 10, 2023 at 8:20 a.m. | UPDATED: July 10, 2023 at 3:34 p.m.

OAKLAND — A wobbly hotel operator will surrender ownership of 19 hotels nationwide — including four in the East Bay — as a way to curb worsening debts, a grim new indicator of ongoing post-COVID hospitality ailments.

Ashford Hospitality Trust, confronted by maturity dates last month on an array of loans, says it has aborted payments on certain mortgages, including two hotels in Newark, one in Oakland and one in Walnut Creek.

The company will let lenders seize 19 properties around the country.

“This is a prudent economic decision that reflects a comprehensive capital management process,” said Rob Hays, Ashford Trust’s chief executive officer.

The East Bay hotels that Ashford Hospitality Trust will return to lenders are Courtyard by Marriott Oakland Airport in Oakland, Courtyard Newark Silicon Valley in Newark, Residence Inn San Jose Newark in Newark, and Embassy Suites Walnut Creek in Walnut Creek.

“With business hotels, and in the case of Ashford Hospitality, you have hotel revenue down, expenses are up and you have a higher cost of financing when the loans come due,” said Alan Reay, president of Atlas Hospitality Group, which tracks the lodging sector in California. “That is a trifecta of problems.”

Ashford Hospitality Trust ultimately determined that it made no economic sense to continue making loan payments on the 19 hotels, including the four in the Bay Area.

“The company…explored and assessed multiple options for these assets including refinancing, extensions, and potential asset sales,” Hays said.

The hotel market has come under intensifying financing pressure even after the end of wide-ranging business shutdowns in the Bay Area and nationwide to combat the spread of the deadly coronavirus.

Hotels in leisure markets such as the Wine Country and the resorts in the Monterey Bay and Big Sur regions have rebounded briskly as guests flock to these getaway destinations in the wake of the pandemic.

In sharp contrast, however, hotels in business-oriented markets such as San Francisco, the East Bay and the South Bay continue to suffer brutally weak revenue and occupancy levels.

Ashford Hospitality estimated it would save $700 million due to halting loan payments on the 19 hotels that will be dumped on the lenders, as well as paying down debt on others.

“The hotel debt markets continue to be challenging,” Hays said.

Early estimates for the lodging market show that hotel sales in California have plunged by about 70% so far during 2023, according to Reay. That’s a nosedive along the lines of the nosedive in real estate markets due to the financial crisis of 2007 and 2008 and the accompanying Great Recession.

“This is going to be like 2009 when hotel sales were down 60%,” Reay said. “We haven’t seen anything like this since 2009.”

The current woes in the Bay Area lodging market include foreclosures and loan failures for hotels on San Francisco’s posh Nob Hill as well as mortgage defaults for sites where hotels had been proposed in San Jose.

The financial woes in the Bay Area hotel market have yet to run their course, experts warn.

“We are going to see a lot more of this,” Reay said.