The Carlton and The Inn at Morro Bay face cash problems

The Inn at Morro Bay and The Carlton Hotel are two of San Luis Obispo County’s premier hotels, properties that for years have added character to their communities and served as popular destinations for tourists and residents.

But with their owners in financial trouble and the properties now in default, the hotels could be lost to foreclosure, leaving the cities of Morro Bay and Atascadero each with one fewer high-profile business and without key sources of revenue at a time when some municipal budgets are already thin.

Those in the hotel industry and leaders in both cities say that a loss of such upscale and well-known properties could have a significant impact given the current economy, and they are hopeful that the current owners will be able to remain in business.

Industry analysts say hotels across California are facing difficulties caused by the recession, which has hurt travel, and the fact that some owners owe more than their properties are worth.

The Inn at Morro Bay is owned by John King, one of the county’s most prominent hoteliers and real estate developers. King is in a legal battle with Wells Fargo, which made a $9 million loan to the Inn at Morro Bay LLC in 2008. The company is now asking the San Luis Obispo Superior Court to foreclose on the property so that it can be sold, and the proceeds used to pay what is owed.

North County businessman David Weyrich owns The Carlton, one of several of his real estate holdings that were not placed on the auction block in February. The hotel, however, is in default and is indebted to lender R.E. Loans. A report in The Tribune last month said the lender had not decided whether it would start foreclosing on the property.

“It (The Carlton) is still selling rooms, and I don’t want to overstate that it is closing, but it is definitely a threat,” said Jim Lewis, Atascadero’s assistant city manager. “We would want to keep it in operation until a sale happened.”

Key to downtown

While the future of The Carlton is unclear, the closure of the 52-room hotel would be a hit to Atascadero in terms of the transient occupancy tax it produces and because it is a hub for downtown, where other businesses have opened nearby. Haven Wine Barn and The Fig, a boutique restaurant, are just two of the additions to the area near The Carlton, one of about a half-dozen hotels in Atascadero. The hotel used to have a bar and restaurant before they closed in February.

“It’s real money,” said Lewis, who noted that a hotel such as The Carlton could produce well over $100,000 annually for the city. (He did not release specific figures for The Carlton.) “Never mind the sales tax from a crowded restaurant and the spillover effect of customers spending money. The hotel adds vibrancy to the downtown.”

Steve Martin, executive director of Atascadero Main Street, called The Carlton a “huge visual anchor to the downtown,” which helps give the area marketability and character.

“Certainly, it’s a good sign when a potential investor comes in and sees a property of the quality of The Carlton,” Martin said. “It is one more reason why they would want to move in there.”

Carlton Hotel manager Deana Alexander said the hotel continues to be a draw for travelers, despite its owner’s financial woes. January and February were slow months, but it was nearly sold out this weekend for the Zinfandel Festival. And there are solid bookings on several weekends in April, May and June, she said. Right now, weekend rates for a small room run $150 a night.

Alexander added that the hotel is in the initial stages of finding another operator for the restaurant.

“We’re just going forward,” she said.

Potential tragedy

Officials in Morro Bay are also concerned about what the closure of the 98-room Inn at Morro Bay could mean for a city that thrives on tourism.

“To me, it would be a terrific loss,” said Mayor Janice Peters. “While it is not our only hotel, it’s certainly the hotel that is indicative of what Morro Bay is.”

Its proximity to the golf course and estuary add to its beauty and charm, she said.

“Locals go there to watch the sunset; weddings are held there all the time,” she said. “It would be a tragic thing to lose that. (The inn’s) not a glitzy thing, but it is real.”

With its restaurant and meeting space, the inn is the only full-service hotel in Morro Bay, said Mike Casola, general manager of The Cliffs Resort in Shell Beach, who also oversees the inn.

There are 932 rooms in Morro Bay, and the inn represents about 10 percent of the hotel rooms on the market, and more than that in revenue because of its higher-than-average rates, he said. The current winter rates start at under $89 a night to $400 a night for a premium room on the water. City officials declined to disclose how much transient occupancy tax the inn brings in, saying the information is proprietary.

When asked about the future of the inn, Casola said simply, “the hotel will never be closed.”

“We are nature’s coastal hideaway, and a nice place to go without breaking the budget,” he said.

Peter Candela, chief executive officer of the Morro Bay Chamber of Commerce, said the city does not want to lose any hotels. He, too, is confident that the inn will survive.

“If we lose a hotel, it won’t close Morro Bay down,’’ he said. “It will give us fewer options, but I don’t think we’re going to skip a beat. It’s a nice property, and it will be picked up by somebody.”

Despite the tough financial environment, Candela said “there are always people with money, and this is the time people make money.”

He also said King, a man he called a good developer and businessman, could “pull this thing out.”

Another tough year

Hotel industry analysts say what’s happening to The Carlton and the Inn at Morro Bay is not unlike what many lodging businesses across California and the nation are experiencing.

The hotel industry has been hit hard by dwindling travel. In San Luis Obispo County, occupancy was down 14.7 percent in January from the same month a year ago. The revenue per available room — rooms sold divided by rooms available — dropped 14.5 percent in that time period, according to data from Smith Travel Research, a Nashville-based company that tracks supply and demand for the hotel industry. Figures for February are not yet available.

The downturn in the commercial real estate market also has not helped matters, with many property owners owing more on the properties than they’re worth.

Since the beginning of 2009, the number of hotels foreclosed upon in California has increased to 62 from 15, while the number of hotels in default jumped to 302 from 53, according to a recent distressed property survey by Atlas Hospitality Group, an Irvine-based business that tracks at-risk hotel properties.

The largest among them to foreclose is the 469-room Marriott in downtown Los Angeles. In San Luis Obispo County, two have gone back to the lender: Casa del Sol, a 16-room hotel in Atascadero, which foreclosed in June 2009 and The Moonstone Inn motel, an 11-room hotel in Cambria, which foreclosed in May 2009.

In addition to the Inn at Morro Bay and The Carlton, the Mission Inn in Pismo Beach also had a notice of default in April 2009, according to Alan Reay, founder of Atlas Hospitality Group. According to Atlas Hospitality Group, the 120-room hotel is owned by developer Ed Dorfman of Arroyo Grande.

“There’s still more to go, unfortunately,” Reay said. “The number of foreclosures and defaults will climb substantially in 2010. People are saying that we’re turning a corner, but this is going to be a tough year for hotel owners and lenders, and it will continue into 2011.”

Bruce Baltin, senior vice president at PKF Consulting in Los Angeles, the firm that did a feasibility study of The Carlton Hotel in 2002, has a more upbeat outlook. Properties like The Carlton are in prime position to be taken over by owners who can “make a success of them,” infusing fresh capital and energy, Baltin said.

“We’re seeing the bottoming out of the economy,’’ he said. “The expectation is that things will improve. San Luis Obispo County has been impacted, but not nearly as impacted as other places around the country.”