Own a hotel in Los Angeles? Then, you’re probably feeling some pain. Relevant’s Grant King is these days.
A lender wants to sell the equity interests in the Dream Hollywood hotel, owned by a company connected to Relevant. A foreclosure auction is scheduled for mid-October.
The lender, LCP Group, alleges Relevant owes more than $30 million in unpaid debt connected to the 10-story, 178-key hotel at 6417 Selma Avenue.
King, for his part, said 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. 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. The London-based company missed its maturity date for the loan tied to the 226-key hotel at 416 West 8th Street that was once the 13-story, Beaux-Arts-style Commercial Exchange Building.
And, this may only be the beginning, Atlas Hospitality Group’s Alan Reay told The Real Deal. Several Los Angeles hoteliers are receiving notice of defaults, and investors are looking at the city with disdain.
Among the the pitfalls that are keeping would-be investor 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.
Add it up and there’s a new calculus, according to Reay, who says he would have called the Dream Hollywood and the Freehand desirable and well-located a few years ago.
Things have changed.
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.
The special servicer requested a court-appointed receiver to take possession of the 53,500-square-foot, century-old, Art Deco office tower at 225 Santa Monica Boulevard. Rialto wants to foreclose and sell the Santa Monica Clock Tower that is only 43 percent occupied.
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. That is still more than the $36.9 million debt connected to the property, and according to servicer commentary via Morningstar, modification discussions are ongoing. Lowe, which on its website notes the Encino Financial Center was the first office building the company acquired on its own behalf, declined to comment.
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.
Stay tuned to see how the companies fared through the third quarter.
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