Landmark Atlanta hotel faces foreclosure
The owner of one of Atlanta’s largest hotels has defaulted on its mortgage, its lender says, joining a growing list of metro area property owners squeezed by an uneven recovery from the COVID-19 pandemic.
The 763-room Sheraton Atlanta Hotel faces foreclosure due to mounting unpaid commitments by its owner, Arden Group, according to a recent notice in a U.S. Securities and Exchange Commission filing. The $98.2 million mortgage went into default in December, leading lender Apollo Commercial Real Estate Finance to say a foreclosure sale is imminent.
“We are in discussions with the sponsor regarding consensual foreclosure, and expect to reach an agreement in the first quarter of 2023,” Apollo wrote in the Feb. 8 filing.
Real estate analysts have said they expect to see the number of defaulted loans increase throughout 2023, especially since Federal Reserve Chairman Jerome Powell committed last week to continuing to raise interest rates in an attempt to stifle inflation.
The downtown Sheraton is among a number of older Atlanta buildings struggling to find their places in the postpandemic economy. Though travel demand has surged since the pandemic, business travel that convention hotels such as the Sheraton rely upon hasn’t fully rebounded. Owners of some office buildings, meanwhile, are struggling to pay their loans as tenants shrink the sizes of their offices amid the sustained popularity of hybrid work schedules.
And for those owners with loans coming due, higher interest rates and tighter lending practices mean some borrowers are in trouble.
In recent months,the 10-acre site slated for the Forge Atlanta mixed-use development and several buildings within the Peachtree Center office complex underwent recent foreclosure sales.
Chris Tierney, a partner and consulting practice leader for Atlanta-based Moore Colson CPAs and Advisors, said older hotels such as the Sheraton are among the most vulnerable to hard economic times, especially after the pandemic upended business travel.
“Most borrowers right now are probably paying three to four times the interest rates they were paying three or four years ago,” he told The Atlanta Journal-Constitution. “And how are they going to cover that if you’re a hotel that thrives on business and convention traffic, and both of those are down?”
It is possible Apollo and Arden could come to an agreement that would forestall foreclosure. Arden declined to comment, and Apollo did not respond to requests for comment.
Guests at the Sheraton are unlikely to see any changes to operations as it’s in the interests of Arden and Apollo to keep things running smoothly and maximize the hotel’s value.
Kevin Davis, CEO of Jones Lang LaSalle Hotels & Hospitality for the Americas, said Sheraton’s fate could signal hard times for similar hotels in major cities. He called the Sheraton’s loan troubles “a bit of a sideshow — not the main event.”
“The Fed is dead set on continuing to raise rates, and that’s going to create particular pressure on assets that have not yet fully recovered, even for assets that have recovered,” Davis said.