Sotherly Hotels has defaulted on a $49.2 million loan for the DoubleTree Resort by Hilton Hollywood Beach, a 311-room property located at 4000 South Ocean Drive in Hollywood, Florida. According to Morningstar Credit and Sotherly’s second quarter filing with the Securities and Exchange Commission, the loan entered special servicing after the company missed its October 1 deadline to pay off the debt.
The default comes as Sotherly faces multiple past due and upcoming maturities on hotel loans. The company has been seeking extensions from lenders or considering significant principal paydowns amid challenging conditions in the refinancing market. Sotherly Hotels is based in Williamsburg, Virginia, and led by CEO Dave Folsom.
Rising interest rates have contributed to Sotherly’s difficulties, as some lenders have reduced new loan issuances and refinancings while focusing on existing debt agreements. Banks are under regulatory pressure to maintain capital levels and address delinquencies before issuing additional loans.
Sotherly did not respond to requests for comment. However, public filings provide insight into its approach to managing these financial challenges.
On Monday, Sotherly announced it would be acquired through a merger agreement with Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. Under this deal, Kemmons Wilson and Ascendant Capital will purchase all outstanding Sotherly common stock at $2.25 per share—a premium of 152.7 percent over Friday’s closing price—with an overall transaction value of $425 million.
In its recent SEC filing, Sotherly stated that it plans to ask for an extension on the DoubleTree Hollywood loan maturity. If unable to secure one, it would seek refinancing; however, this may require paying down up to $12.3 million in principal based on current financial performance.
The pending merger could assist with these payments: “Under the agreement, Kemmons Wilson will immediately provide Sotherly with a $25 million revolving line of credit at a floating interest rate,” according to public filings.
The DoubleTree Resort sits among several upscale hotels between the Atlantic Ocean and Intracoastal Waterway. Nearby properties owned by Sotherly include Lyfe Resort & Residences (57 rooms) and Hyde Beach House Resort & Residences (68 rooms), both condo-hotels.
Sotherly purchased the DoubleTree 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. The original financing included a $57 million Bank of America loan in 2015 that later increased before being refinanced in 2021 with Morgan Stanley, Bank of America, and Merrill Lynch at an interest rate of 4.9 percent.
The property has experienced recurring debt challenges over several years. In December last year, its debt service coverage ratio (DSCR) was below breakeven at 0.97x but improved to 1.15x by June this year according to Morningstar Credit data—a DSCR above one indicates positive cash flow relative to debt obligations.
Following initial distress during pandemic-related lockdowns in 2020—which led the loan into special servicing—the property exited special servicing in 2021 as performance recovered somewhat. In 2023 another decline triggered a “cash trap” provision requiring all revenue be deposited into an account controlled by lenders; improved performance allowed exit from this arrangement earlier this summer.
Last year’s occupancy rate averaged about 68 percent for the hotel per Morningstar Credit data.
Sotherly also defaulted this summer on a nearly $38 million loan secured by its Georgian Terrace hotel in Atlanta—where it is seeking an extension or expects a paydown if refinancing is necessary—and faces additional maturities next year for loans tied to properties including DoubleTree by Hilton Philadelphia Airport and The DeSoto hotel in Savannah.
