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 loan entered special servicing after Sotherly missed the October 1 due date for repayment, according to Morningstar Credit and the company’s second quarter filing with the Securities and Exchange Commission.
The real estate investment trust, based in Williamsburg, Virginia and led by CEO Dave Folsom, has been facing several maturing loans across its hotel portfolio. This has led Sotherly to seek extensions from lenders or consider paying down significant portions of principal as refinancing conditions remain challenging. Higher interest rates have made it more difficult for companies like Sotherly to secure new loans or refinance existing debt, as many banks are tightening lending standards while addressing delinquencies and maintaining required capital levels.
Sotherly did not respond to requests for comment. However, public filings detail the company’s approach to its current financial challenges.
On Monday, Sotherly announced an agreement to be acquired by Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. The merger will see Kemmons Wilson and Ascendant Capital pay $2.25 per share for all outstanding Sotherly common stock—a 152.7 percent premium over Friday’s closing price—valuing the deal at $425 million according to Hotel Investment Today. The transaction is expected to close in the first quarter of next year.
In its recent SEC filing, Sotherly stated that it plans to request an extension from its lender regarding the DoubleTree Hollywood loan maturity. If unsuccessful, the company would need to pursue refinancing; this could require a principal paydown of up to $12.3 million depending on the property’s financial performance.
The planned merger may provide some relief: under the agreement, Kemmons Wilson will immediately extend a $25 million revolving line of credit at a floating interest rate to Sotherly.
The DoubleTree Resort is situated among other upscale hotels and condo-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 operating as condo-hotels.
Sotherly purchased the DoubleTree in 2007 for $74 million. The building was originally completed in 1973 and underwent renovations in 2000, 2008, and most recently in 2017 when it became part of Hilton’s DoubleTree brand.
The property’s financing history includes a $57 million loan from Bank of America in 2015 that was later increased to $60 million before being refinanced in 2021 with lenders including Morgan Stanley, Bank of America, and Merrill Lynch at an interest rate of 4.9 percent; the balance now stands at $49.2 million.
Debt issues have recurred for this asset over several years. In December last year, Morningstar Credit reported that the hotel had a debt service coverage ratio (DSCR) for net cash flow of 0.97x—below the breakeven point of 1x—though this improved to 1.15x by June.
The loan initially went into special servicing during early pandemic lockdowns but exited that status in 2021 as conditions improved. In 2023, declining performance triggered a “cash trap” provision requiring all revenue be directed into an account controlled by lenders; improved results this summer allowed release from that restriction.
Average occupancy at the hotel was reported at 68 percent last year by Morningstar Credit.
Sotherly also defaulted this summer on a nearly $38 million loan secured by its Georgian Terrace hotel in Atlanta (326 rooms). The company requested a one-year extension; if denied, it expects refinancing will require paying down about $4 million on that debt.
Looking ahead, loans secured by Sotherly’s DoubleTree by Hilton Philadelphia Airport and The DeSoto hotel in Savannah are set to mature next year.
