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. The loan entered special servicing after Sotherly missed the October 1 due date for repayment, according to Morningstar Credit and Sotherly’s second quarter filing with the Securities and Exchange Commission.
The company, based in Williamsburg, Virginia, is a publicly traded real estate investment trust led by CEO Dave Folsom. Sotherly has been contending with overdue and upcoming maturities on several hotel loans. The firm has sought extensions from lenders or faces substantial principal paydowns amid what it describes as a challenging refinancing market.
Higher interest rates have contributed to these difficulties, leading some lenders to reduce new loan issuance and focus on existing debt through forbearance agreements and maturity extensions. Banks are required to maintain minimum capital levels and address delinquencies before issuing additional loans.
Sotherly did not respond to requests for comment but outlined its strategy in public filings. The company said it plans to request an extension from the lender for the Hollywood hotel’s loan maturity. If unsuccessful, it would pursue refinancing, which could require paying down up to $12.3 million of the debt “based on current and anticipated financial performance” of the property.
On Monday, Sotherly announced that it will be acquired under a merger agreement by Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. According to public filings, Kemmons Wilson and Ascendant Capital will acquire all outstanding Sotherly common stock at $2.25 per share—a 152.7 percent premium over Friday’s share price—in a deal valued at $425 million reported by Hotel Investment Today. As part of the agreement, Kemmons Wilson will provide Sotherly with a $25 million revolving line of credit at a floating interest rate.
The DoubleTree Resort is located among other upscale hotels between the Atlantic Ocean and Intracoastal Waterway. Nearby properties owned by Sotherly include Lyfe Resort & Residences and Hyde Beach House Resort & Residences.
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.
In 2015, Sotherly obtained a $57 million loan from Bank of America which was later increased to $60 million that year 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 recent 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 1x indicates positive cash flow relative to debt obligations.
The loan previously entered special servicing during the pandemic in 2020 but exited this status in 2021 as business conditions improved. In 2023, underperformance triggered a “cash trap” provision requiring all revenue be deposited into an account controlled by the lender; this restriction was lifted after improved performance this summer.
Last year’s occupancy rate averaged 68 percent at the hotel according to Morningstar Credit data.
Sotherly also defaulted this summer on another significant loan—nearly $38 million—secured by its Georgian Terrace hotel in Atlanta where it is seeking an extension or faces another paydown requirement if forced into refinancing.
Additional loans tied to other properties such as DoubleTree by Hilton Philadelphia Airport and The DeSoto in Savannah are set to mature next year.
