F.C. Marriotts head for foreclosure

FORT COLLINS – Three Marriott-branded properties in Fort Collins have started down the road to foreclosure.

In August, a notice of election and demand for sale was filed in Larimer County on the portfolio held by Integrated Capital LLC. An NES is the first step in the long process of foreclosure and indicates that the borrower is in default. As of Oct. 19, the NES recording was still active.

Repeated calls and e-mails to Integrated Capital’s Managing Partner Kenneth Fearn and local hotel management requesting comment for this story were not returned.

Los Angeles-based Integrated Capital purchased The Courtyard by Marriott and Residence Inn, both on Oakridge Drive off Harmony Road, and the Marriott Hotel on Horsetooth Road in September 2006 from an ownership group that included the Everitt Cos.

“The Marriott has always performed as an investment quite well,´ said David Everitt, president of the Everitt Cos., at the time of the sale. Everitt and developer Sitzman-Mitchell & Co. headed the general partnership that sold the properties. “We liked the cap rates on hotels right now. It’s a cyclical business, and this was the right time in the cycle (to sell).”

Integrated Capital saw the past several years as a great opportunity to buy. The firm was founded in 2004 with the intent of purchasing and operating hotel properties across the United States. At the time of the Fort Collins acquisitions it had already purchased Doubletree Hotels in California and another Residence Inn in Maryland.

According to the company’s Web site, it currently owns the Doubletree Bakersfield, Marriott Ventura Beach and Carga Business Center in California; the Marriott in Overland Park, Kansas; and three Residence Inns in Maryland, in addition to the Fort Collins properties.

The firm has shown a track record of investing in their portfolio as well. In mid-2007, the company started renovations at the Marriott on Horsetooth. Most recently, it finished up a $20 million remodel of its Overland Park Marriott.

December deadline to cure

The 2006 Fort Collins purchase included a special warranty deed for the 350 Horsetooth Road property for $20.68 million and another for both Oakridge hotels for $11.05 million. The NES filing shows that a balance of $32 million is due on the notes that held an original balance of $32.5 million and indicates that the filing was made because of a “failure to make timely monthly payment.” According to Larimer County’s searchable online database, this could be the largest NES filing made in the county.

The deadline for Integrated Capital to file its intent to cure is Dec. 15 with a cure deadline of Dec. 29. The sale date is currently scheduled for Dec. 30. Fort Collins Marriott General Manager David McDaniel said that day-to-day operations at the hotel are normal. He couldn’t comment on the NES filings and referred further questions to Integrated Capital.

The current holder of the note is an entity identified as Comm 2006-C8 Horsetooth LLC. It filed its articles of organization in Colorado on May 20 this year with an attorney listed as the registered agent.

The original holder of the note is identified in the NES filing as Barclays Capital Real Estate Inc. However, a series of transactions in 2007 assigned the notes to Chicago-based Lasalle Bank NA, which became part of Bank of America in 2008, and an entity named Comm 2006-C8 Commercial Mortgage Pass-Through. A commercial mortgage pass-through certificate is an instrument used in the commercial mortgage-backed securities market. Wells Fargo is also listed in county records as having had an interest in the notes.

Holland and Hart Partner Kent Karber, listed as the attorney for the NES filer, said he cannot comment on specific matters or identify his clients. His office in Colorado Springs handles nothing but commercial foreclosure proceedings and has seen an increase in activity in recent months.

“While there has been a spike recently in the number of commercial foreclosures, that is not necessarily indicative of defaults in the immediate past,” Karber explained. “Many of the commercial loans going to foreclosure now have been underperforming or not performing for some time.”

Particularly with large borrowers, lenders often try to work through the loans using interest forgiveness, principle reductions, and other modifications before deciding to foreclose.

Karber said the typical commercial foreclosure, like a residential one, takes about five months from start to finish. He points to the silver lining in that the process can act to free up capital that eventually can be invested back in the market.

“Maintaining the status quo of underperforming loans that encumber properties that have decreased in value is the situation that the Japanese found themselves in the 1990s,” he explained. “Because they failed to move toward a disposition of the underperforming and nonperforming loans in a timely matter, their recession was deep and prolonged.”

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