San Clemente-based Sunstone Hotel Investors Inc. is set to turn over the W Hotel in San Diego rather than continue paying interest on the building after failing to rework terms of its loan.
Sunstone, which owns all or part of 43 hotels, bought the 258-room W for $96 million in 2006 from a group led by developer Gatehouse Capital Corp.
Starwood Hotels & Resorts Worldwide Inc. operates the hotel and likely will continue to do so after it reverts to the lender.
Sunstone owes $65 million on the W with $4 million in payments due this year. The loan carries an interest rate of 6.14%.
The company said it would rather forfeit the hotel than continue making payments on a mortgage that’s now worth more than the hotel itself.
“While the company maintains more than adequate liquidity to support or repay this mortgage, we believe a conveyance of this hotel in settlement of the debt would be in the best interest of our stockholders,” Chief Financial Officer Ken Cruse said in a statement.
The W has failed to generate enough to cover operating costs and debt since 2007.
The mortgage is handled by New York-based Centerline Capital Group, which has a special servicing unit for loans that are in trouble.
Sunstone said it could walk away from other mortgaged hotels, but declined to identify any that might be in danger of default.
The company is dealing with the worst hotel downturn in recent memory.
Last month, Sunstone announced plans to sell about $100 million worth of shares to pay off credit lines and to fund the buying back of a $123.5 million worth of debt due in 2027.
The company’s shares are down about 70% in the past 12 months as it struggles with declining revenue and profits as occupancy at its hotels weakens.
Sunstone has a market value of about $315 million.
