The roots of the problem could be found starting last year, when Sunstone Hotel Investors, owner of the San Diego W, stopped paying the mortgage on the property in June 2009. According to public documents, Sunstone paid $96 million for the hotel — which opened in 2002 – near the market peak in 2006, financing its purchase with a $65 million mortgage that carried a 6.14% interest rate due in 2018.
That sounds like reasonable leverage, less than 70%, given the frothy
financing of the times. But here’s the rub – the company estimated its principal payments were 30 times the amount of expected cash flow in 2009. That’s an accountant’s nightmare and a serious problem. And It didn’t help that half a dozen swanky new hotels were built only blocks away.