Sotherly Hotels has defaulted on a $49.2 million loan tied to the DoubleTree Resort by Hilton Hollywood Beach, a 311-room property located at 4000 South Ocean Drive in Hollywood, Florida. The debt entered special servicing after Sotherly missed the October 1 deadline to pay off the loan, according to public filings and Morningstar Credit data.
The real estate investment trust, based in Williamsburg, Virginia and led by CEO Dave Folsom, has been dealing with several past due and upcoming maturities on its hotel loans. This situation is occurring during a period of higher interest rates that have made refinancing more difficult as lenders are less willing to issue new loans or extend existing ones while they manage their own balance sheets and regulatory requirements.
Banks are currently under strict federal oversight and must address delinquent loans before issuing additional credit. Sotherly did not respond to requests for comment but described its approach in recent Securities and Exchange Commission filings.
On Monday, Sotherly announced it would be acquired through a merger agreement by Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. Under this deal, shareholders will receive $2.25 per share—a 152.7 percent premium over the previous Friday’s closing price—with the total transaction valued at $425 million, as reported by Hotel Investment Today. The acquisition is expected to close in the first quarter of next year.
Sotherly’s second quarter filing indicated that it plans to request an extension from its lender for the Hollywood hotel loan maturity. If an extension cannot be secured, the company will seek refinancing; however, this could require paying down up to $12.3 million of principal based on current financial performance.
The planned merger may help with these obligations: Kemmons Wilson will provide Sotherly with a $25 million revolving line of credit at a floating interest rate upon completion of the deal.
The DoubleTree Resort is part of a corridor featuring upscale hotels between the Atlantic Ocean and Intracoastal Waterway. Sotherly also owns two nearby condo-hotels: Lyfe Resort & Residences (57 rooms) and Hyde Beach House Resort & Residences (68 rooms).
Sotherly purchased the DoubleTree property in 2007 for $74 million; it was built in 1973 and renovated most recently in 2017 when it became part of Hilton’s DoubleTree brand. In 2015, Sotherly received a $57 million loan from Bank of America—later increased—and refinanced again in 2021 with Morgan Stanley, Bank of America, and Merrill Lynch at an interest rate of 4.9 percent.
The company has faced recurring debt challenges related to this property since shortly after the onset of COVID-19 lockdowns in 2020 when the loan initially went into special servicing but later exited as conditions improved. In December last year, its debt service coverage ratio (DSCR) was below breakeven at 0.97x but had improved to 1.15x by June.
In addition to issues with the Hollywood property, Sotherly defaulted this summer on a nearly $38 million loan for its Georgian Terrace hotel in Atlanta and requested an extension there as well; if unsuccessful it expects to pay down about $4 million on that debt.
Loans on other properties—including DoubleTree by Hilton Philadelphia Airport and The DeSoto in Savannah—are set to mature next year.
Last year’s occupancy rate at DoubleTree Hollywood averaged 68 percent according to Morningstar Credit data.
