Commercial Real Estate Direct Staff Report

Ashford Hospitality Trust Inc. said it is prepared to default on a $101 million mortgage on the Westin O'Hare hotel in Chicago.

The loan doesn't come due until 2016, but the 525-room property has seen a dramatic decline in operating fundamentals, with net cash flow falling to only $2.8 million for the 12 months that ended in June from $6.6 million of cash flow for all of 2008. In 2007, cash flow totaled $8.2 million, according to servicer data compiled by Realpoint.

The four-star property's loan was securitized through Morgan Stanley Capital I Trust, 2006-IQ12 and was moved to Centerline Servicing, the deal's special servicer, last June because of imminent default. But Ashford has remained current on the loan's monthly $505,309 interest payments, at least through last month.

But given the cash-flow shortfall, Ashford has been trying to restructure the loan. However, it has yet to reach an agreement with Centerline. As a result, it said it would review its options, including defaulting on the loan or negotiating a deed-in-lieu of foreclosure. The REIT said it would benefit from a deed-in-lieu by reducing debt on its balance sheet and reducing its exposure to required capital expenses. It would also be able to save cash by no longer funding the property's cash-flow shortfall.

"These events may result in de-leveraging the company and providing, in some cases, for enhanced covenant compliance on the company's secured credit facility," Ashford said in an announcement.

Separately, Ashford has defaulted on a $29.1 million mortgage on the Dearborn Hyatt Regency hotel in Dearborn, Mich., and said it will give the property to its lender, perhaps through a deed-in-lieu of foreclosure. It is also working out a deal to name a receiver for the property.

The loan was securitized through GS Mortgage Securities Corp. II, 2004-C1, and is more than 90-days delinquent. The special servicer for the CMBS deal is CWCapital Asset Management.

Its collateral, a 14-story property at 600 Town Center Drive, has 772 rooms and was constructed in 1976. Ashford had acquired an 85 percent stake in the property as part of its 2007 purchase of hotels from CNL Hotels & Resorts. It subsequently bought the remaining stake in the hotel in a deal that valued it at $50 million.

Comments? E-mail Orest Mandzy or call him at (215) 504-2860, Ext. 211.