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The super-upscale, 258-room W Hotel at 421 B St. will go into default this month and go back to its lenders, Sunstone Hotel Investors, a San Clemente-based hotel real estate investment trust, said today (June 7). Sunstone said the hotel has been hurt by "significant and continuing deterioration in demand for luxury lodging." The nearby 1,190 convention center hotel has hurt W, along with the opening of luxury boutique hotels and two Starwood-branded hotels. Sunstone purchased the hotel for $96 million in 2006. It has a $65 million mortgage and $250,000 debt per room, according to the Associated Press. The hotel is now worth less than what Sunstone owes on it, says the REIT.

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Comments

Don Bauder June 10, 2009 @ 9:27 p.m.

Response to post #29: Upscale retailers have been hit quite hard. Ditto for makers of upscale products, such as luxury recreational vehicles. Prime mortgages are now in trouble. Best, Don Bauder

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Don Bauder June 10, 2009 @ 4:20 p.m.

Response to post #27: When it announced it would go into default on W Hotel in San Diego, the REIT said that the luxury hotel business was down, and particularly depressed in San Diego. Anecdotal evidence suggests that some of the most opulent hotels downtown, particularly in the ballpark district, are doing very poorly. Best, Don Bauder

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Don Bauder June 9, 2009 @ 6:38 a.m.

Response to post #17: The government and Federal Reserve, under both Bush and Obama, have thrown $13 trillion at the current Great Recession. Some of that will be monetized. When the economy returns to normal growth (and that could be several years away), inflation could erupt quickly and severely with all this liquidity sloshing around. Best, Don Bauder

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Don Bauder June 9, 2009 @ 6:43 a.m.

Response to post #18: According to monetarist theory, your observation is correct. Best, Don Bauder

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Don Bauder June 9, 2009 @ 6:51 a.m.

Response to post #19: It was once super-upscale. Room prices were quite high by comparison with other hotels, including luxury hotels. However, room rates for luxury hotels in San Diego have plummeted. (The same is true in some other markets.) There is another factor: the location of this luxury hotel was not particularly good from the outset. Best, Don Bauder

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SurfPuppy619 June 10, 2009 @ 4:36 p.m.

Yes, this recession is hitting so hard, and it is NOT just the poor amd middle class gettign slammed, but every income level.

A new report came out today that home prices in Southern CA. have hit their lowest rate since 1989. That is crazy.

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johnegger23 June 9, 2009 @ 7:10 p.m.

"It was once super-upscale"

Never "super-upscale".

Better than a motel 6? Sure.

The W is a corporatized version of a real "boutique" hotel. Low quality, and overpriced.

Not "cool", not even "upscale"

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Don Bauder June 9, 2009 @ 9:18 p.m.

Response to post #23: It's not worth getting into a fistfight over this definitional matter. I understand that in the recession, Motel 6 has changed its name to Motel 4 and isn't keeping the light on for us. Best, Don Bauder

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SurfPuppy619 June 10, 2009 @ 11:56 a.m.

Do you suppose one problem W Hotel has (besides the poor location) is the name W? Do potential customers think of Dubya? Maybe the whole W chain should consider a new name. As I recall, Motel 6 got its name because the price was to be $6 a night.

Yes, Motel 6 was named that way because when they started $6 is what a room cost.

As for the W hotel going under because of it's name......nah;

St. Regis resort in Dana Point faces foreclosure sale

Want to buy a five-star, down-on-its-luck resort?

The St. Regis Monarch Beach, infamous as the hotel where American International Group sponsored a luxury retreat just days after accepting a federal bailout, has been scheduled for a foreclosure auction.

The companies that own the resort are in default on a $70-million loan from Citigroup Global Markets Realty Group, people knowledgeable about the debt said Tuesday.

http://www.latimes.com/media/photo/2009-06/47409604.jpg

Beautiful Hotel^^^^^

http://www.latimes.com/business/la-fi-numonarch10-2009jun10,0,7571143.story

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Don Bauder June 10, 2009 @ 8:14 a.m.

Response to post #25: Motel 6 is cheaper than W Hotel. Do you suppose one problem W Hotel has (besides the poor location) is the name W? Do potential customers think of Dubya? Maybe the whole W chain should consider a new name. As I recall, Motel 6 got its name because the price was to be $6 a night. Then came inflation. But the name stuck. Best, Don Bauder

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Burwell June 7, 2009 @ 10:04 p.m.

From the perspective of its lenders, Sunstone should change its name to "Pound Sand". REITs should not be allowed to borrow money or buy real estate with debt. REITs should raise money from investors and purchase real estate for cash, without using debt or leverage. I wonder how the Indians are faring with their purchase of the US Grant Hotel. They put millions into its renovation.

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Don Bauder June 7, 2009 @ 10:22 p.m.

Response to post #1: Real estate is a debt game. That's a major reason why the residential real estate crash has been so pernicious, and why the commercial real estate plunge will also be deleterious. Best, Don Bauder

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SurfPuppy619 June 7, 2009 @ 11:14 p.m.

$31 million dollar loss in 3 years....hmmmmmm, that's just under $1 million per month.

Not going to stay in business very long with those kinds of numbers.

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SurfPuppy619 June 7, 2009 @ 11:21 p.m.

REITs should not be allowed to borrow money or buy real estate with debt. REITs should raise money from investors and purchase real estate for cash, without using debt or leverage.

I disagree, as long as you have a healthy amount if skin in the game, 35% or more, then I don't see a problem.

After the 1990's commercial real estate depression-where spec buildings were built with no skin in the game-lenders started requiring 30% minimum of skin in the game, loan to value ratio could not exceed 65%. That still holds true today on the commercial side-and it used to also be true on the residential side-where no loans were underwritten unless a minimum of 20% of a debtors own skin was in the game.

That was the case here, they bought the property for $96 million and carried a note for $65 million of that-which means they had $31 million of their own skin in the deal.

I don't think the note holder will take a bath at all, and if they do lose money it will be an insignificant amount.

If residential lending had not loosened their standards like moron idiots then we wold not be in the meltdown we are currently in.

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Don Bauder June 8, 2009 @ 5:58 a.m.

Response to post #3: Some of the other upscale hotels downtown are hurting, too. For that matter, so are downscale and medium-scale ones. Tourism is ailing. San Diego hasn't awakened to that yet. Best, Don Bauder

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Don Bauder June 8, 2009 @ 6:01 a.m.

Response to post #4: REITs use debt, often irresponsibly. The market has slaughtered REIT stocks, and the excessive debt is one reason. Best, Don Bauder

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Ponzi June 8, 2009 @ 8:42 a.m.

Real estate is all about leverage. Of couse debt is the name of the game. The more debt, the more leverage, the more profit potential but also more risk.

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JakeSD June 8, 2009 @ 9:48 a.m.

Pie in the sky projections. They take top W financials from the highest of the boom years (2005-2006) and project that going forward and increasing.

Any banker or analyst worth his salt knows the risks with those kind of projections-based deals.

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Don Bauder June 8, 2009 @ 11:51 a.m.

Response to post #7: And it's not just real estate. Many industries fly by the same mentality: the more debt, the higher profits (and if we lose the gamble, the government will bail us out.) What do you think happened to the big Wall Street firms (now considered banks)? The SEC stupidly let them boost leverage to ridiculous heights. The government encouraged consumers to go into excessive debt. Now look what has happened. It's leverage that is sinking the global economy. Best, Don Bauder

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Don Bauder June 8, 2009 @ 11:54 a.m.

Response to post #8: Go to downtown San Diego, and then walk the neighborhoods. As you see all the near-empty and empty buildings, foreclosure and short sale signs, ask yourself this question: how many bankers are worth their salt? Best, Don Bauder

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SurfPuppy619 June 8, 2009 @ 12:20 p.m.

Response to post #7: And it's not just real estate. Many industries fly by the same mentality: the more debt, the higher profits (and if we lose the gamble, the government will bail us out.) What do you think happened to the big Wall Street firms (now considered banks)?

This is why you start making the big banks and investment banks put their own net worth at risk. Make them use their own money on these wild, speculative bets. The lets see how much leverage they use.

The ONLY reason we had this meltdown was because of leverage. Making BIG BETS with other peoples money. If the investment banks had their OWN money at state, from the days when they were partnerships and NOT public companies, you would have never seen the kind of leverage and risk we saw in the meltdown.

Make them have their own skin in the game and the game changes for the better-responsibility is brought back and profit is in line with risk.

The last 10 years have shown that these millionaire and billionaire investment banks and their brokers have had private profits with socialized risks. Makes my stomach turn to see how this has unfolded, with the worst abusers reaping huge rewards, at the expense of the poor and middle class, for their irresponsible behaviour.

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JakeSD June 8, 2009 @ 1:10 p.m.

Don, as banker I have seen many banks take foolish risks. Whether it was Lehman on commercial side, Countrywide on residential side or Citibank taking huge deritive risks.

The ones taking these huge risks created the RE bubble and economic downturn (pushed by factors such as CRA and gambling on deritives). Some banks are still on solid footing, but are having to also suffer though the bubble as the real estate and entire economy has stumbled.

I would compare it to neighbors, one of whom saved 20% for a down payment, kept his credit in check and lived within his means. The other put 0% down, got interest only loan, refi'd with cash out for cars and other toys until the well ran dry and he got foreclosed on.

Now both homeowners have seen their values drop by 40%, but the government is spending all their time and effort to help the second homeowner who behaved irresponsibly and took the foolish risks. The government is pushing for the banks to modify his loans, reduce his payments, in some cases reduce the principal amount. The first homeowner will have to wait for the market to rebound, hope his job is safe in this economy and sees the neighbrhood around him deteriorate with "for rent" and foreclosed" signs.

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Don Bauder June 8, 2009 @ 2:31 p.m.

Response to post #11: Excessive and foolish leverage was the proximate cause of the current collapse. The banks with their derivatives aren't the only guilty parties. Consumers who knowingly took on mortgages based on a fallacy (that home prices always rise) must take some of the responsibility on their own shoulders, although predatory mortgage lenders (con artists) were greatly to blame. There were a lot of insane things that became de rigueur. It will be a long time before we are out of this mess. Best, Don Bauder

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Don Bauder June 8, 2009 @ 2:36 p.m.

Response to post #12: Unfortunately, the prudent lose when the government bails out the imprudent. Prudent people save. They like high interest rates. But their interest rate plummets when the central bank comes to the rescue of the imprudent and lowers interest rates aggressively, such as it is doing today. 'Twas ever thus. Best, Don Bauder

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JakeSD June 8, 2009 @ 5:09 p.m.

We'll see what happens. Hyperinflation or deflation could make this recent downturn seem like a pleasant ride.

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Don Bauder June 8, 2009 @ 7:47 p.m.

Response to post #15: The conventional wisdom is that deflation is much harder to tame than inflation. That is why governments and central banks will risk creating inflation, or hyperinflation, to stop deflation. Once this economy returns to normal growth rates -- and I for one don't see that for several years -- the Fed will have to clamp down hard to prevent rapid inflation. History has shown it is not good at that. Politics interferes. Best, Don Bauder

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David Dodd June 8, 2009 @ 7:58 p.m.

Don,

The problem with inflation is that it occurs much faster than the Fed recognizes it. My theory (cock-eyed, perhaps), is that it is already in the process of developing. Oil and gas prices are rising against a consumer base that can't afford the increases, but will pay for them anyway. Combine that with the huge increase in the money supply. The price of goods will certainly rise because of it, and your observation about politics interfering is spot on - the Fed will be reluctant to raise the prime rate and eventually inflation will be a huge problem.

I think we're all screwed.

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SurfPuppy619 June 8, 2009 @ 8:19 p.m.

the Fed will have to clamp down hard to prevent rapid inflation. History has shown it is not good at that. Politics interferes. Best, Don Bauder

By dbauder 7

Combine that with the huge increase in the money supply.

We are going to have inflation up the wazoo.

You cannot print money (backed by nothing) like it is toilet paper and not have rampant inflation.

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johnegger23 June 8, 2009 @ 10:37 p.m.

"The super-upscale, 258-room W Hotel"

Its not super upscale.

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