Sotherly Hotels has defaulted on a $49.2 million loan tied to the DoubleTree Resort by Hilton Hollywood Beach, a 10-story hotel with 311 rooms 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 Securities and Exchange Commission filing.
The default comes as Sotherly faces several maturing loans and challenges in securing refinancing in a market marked by higher interest rates. These conditions have led many lenders to limit new loans and focus on resolving existing delinquencies.
Sotherly Hotels, based in Williamsburg, Virginia, is a publicly traded real estate investment trust led by CEO Dave Folsom. The company did not respond to requests for comment but outlined its strategy for addressing its debt issues in public filings.
On Monday, Sotherly announced it would be acquired under a merger agreement by Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. Under the deal, Kemmons Wilson and Ascendant Capital will pay $2.25 per share for all outstanding Sotherly common stock—a premium of over 150 percent compared to the previous Friday’s share price. The transaction is valued at $425 million and is expected to close in the first quarter of next year.
To address the maturity of the Hollywood hotel loan, Sotherly stated it would seek an extension from its lender. If unsuccessful, the company said it would pursue refinancing, which could require paying down up to $12.3 million of principal based on current financial performance.
The merger agreement includes immediate financial support: “Kemmons Wilson will immediately provide Sotherly with a $25 million revolving line of credit at a floating interest rate,” according to public filings.
The DoubleTree Resort is located among other upscale hotels and condo-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 property in 2007 for $74 million. The building was constructed in 1973 and has undergone renovations in 2000, 2008, and most recently in 2017 when it became part of Hilton’s DoubleTree brand.
In 2015, Bank of America provided a $57 million loan on the property; this was later increased before being refinanced in 2021 with lenders including Morgan Stanley, Bank of America, and Merrill Lynch. The current balance stands at $49.2 million with an interest rate of 4.9 percent.
Historically, the property has experienced periodic financial difficulties. 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. The loan previously entered special servicing during the pandemic but exited after industry conditions stabilized.
In 2023, declining performance triggered a cash management provision requiring all revenue be directed into an account controlled by the lender; this restriction was lifted after performance improved over summer months.
Last year’s occupancy rate at the hotel averaged 68 percent.
This summer also saw Sotherly default on another major loan—nearly $38 million—for its Georgian Terrace hotel in Atlanta; here too it requested an extension or may need to pay down about $4 million if refinancing becomes necessary.
Looking ahead to next year, loans secured by two more Sotherly properties—the DoubleTree by Hilton Philadelphia Airport and The DeSoto in Savannah—are scheduled to mature.
