A mixed-use hotel in downtown Atlanta will be returned to its lender amid new financial troubles, becoming the city’s second hotel to face foreclosure this year.
Ashford Hospitality Trust plans to relinquish the W Atlanta — Downtown hotel off Ivan Allen Jr. Boulevard because it is not generating enough value to cover its debts, according to a recent federal filing. The 237-room hotel, which features condos on its upper floors that were not a part of the original loan, is among 19 hotels across the country that Ashford Hospitality Trust will dump to cut costs and reduce its debt.
The W hotel is the latest large property in Atlanta to face loan distress as the office and hospitality markets unevenly recover from the COVID-19 pandemic. High interest rates, fears of a recession and a wall of debt set to mature in the coming years have some economists worried a wave of foreclosures could sweep through underperforming commercial properties.
“It’s just a question of whether you borrowed money at the wrong time and the loan is coming due or you can’t make your payments,” Central Atlanta Progress President A.J. Robinson told The Atlanta Journal-Constitution.
The 19 hotels were financed by three commercial mortgage-backed securities, whose lenders included Bank of America, Barclays Bank and Morgan Stanley. The loans matured in June, but Ashford Hospitality Trust did not extend the loans after deciding the return on investment was not worth it, according to the July 7 filing with the U.S. Securities and Exchange Commission.
The decision to offload the hotels , first reported by the Atlanta Business Chronicle, will save Ashford Hospitality Trust about $305 million in costs to continue holding the properties, while also reducing the firm’s debt portfolio by about $700 million, according to the filing.
Credit: undefined
Credit: undefined
The W hotel, which is managed by Marriott, will likely not see any immediate changes, since most hotels continue operations through ownership changes to retain their value.
Ashford Hospitality Trust, a publicly traded real estate investment trust (REIT) based in Texas, did not respond to multiple requests for comment.
Prior foreclosure
The W hotel ran into financial issues as soon as it opened.
The 28-story property opened in January 2009, coinciding with the Great Recession. In its first year, only one of its 74 condos had sold, according to media reports at the time.
Almost immediately, the W hotel was on the brink of foreclosure. The property’s primary lender was a subsidiary of Atlanta-based Silverton Bank, which went under in 2009. The hotel had various other lenders consisting of more than two dozen banks and multiple mezzanine lenders, which prompted the Federal Deposit Insurance Corp. to get involved because of the situation’s complexity.
The property went through foreclosure in October 2010. Ashford Hospitality Trust would acquire the hotel in 2015 for nearly $57 million.
The W hotel will join the 763-room Sheraton Atlanta Hotel as the first two victims of this economic cycle. Arden Group, the owner of the 58-year-old Sheraton, defaulted on its mortgage earlier this year, setting the stage for an imminent foreclosure.
Credit: Miguel Martinez
Credit: Miguel Martinez
While the two hotels are less than a mile apart, Robinson said they are not comparable.
“They’re really different types of products,” he said. “The W is more of a high-end, kind of trendy product, while the Sheraton is a large hotel with big meeting space and has been around a long time.”
Pandemic recovery
Downtown is home to Atlanta’s largest cluster of hotels and will boast more than 13,000 hotel rooms in January when the Signia by Hilton opens near the Georgia World Congress Center. The hospitality sector has also rebounded from the doldrums of the pandemic as business and convention travel increases.
The office sector, however, continues to lag. Nearly 30% of all office square footage in metro Atlanta was available for rent, a record high, at the end of June, according to data from real estate services firm CBRE.
The pressure on office landlords has prompted a few prominent foreclosures, including six towers and a mall within Peachtree Center in September.
While many economists fear more distress is in the pipeline for the office sector, Robinson doesn’t expect the city’s hotels to face widespread pain.
“Hotels are doing quite well downtown,” he said. “You can’t say that about the office market, but you can really say that about the hotel market.”
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