Sotherly Hotels has defaulted on a $49.2 million loan for the DoubleTree Resort by Hilton Hollywood Beach, a 10-story hotel located at 4000 South Ocean Drive in Hollywood, Florida. The missed payment on October 1 led to the debt entering special servicing, according to filings with the Securities and Exchange Commission and Morningstar Credit.
The company, based in Williamsburg, Virginia, is facing challenges with several of its hotel loans as some come due or are already past due. Sotherly has been seeking extensions from lenders or considering significant principal paydowns amid a difficult refinancing environment marked by higher interest rates. These conditions have caused many lenders to reduce new loan issuances while they address existing delinquencies and maintain required capital levels under federal oversight.
Sotherly did not respond to requests for comment. However, public filings detail its strategy for managing these financial pressures. In its second quarter filing, Sotherly said it would ask the lender for an extension on the Hollywood property’s loan maturity. If unsuccessful, the company may seek refinancing but expects that would require paying down up to $12.3 million of the principal “based on current and anticipated financial performance” of the property.
On Monday, Sotherly announced it will be acquired through a merger agreement by Kemmons Wilson Hospitality Partners of Memphis and Ascendant Capital Partners of Los Angeles. The deal values Sotherly at $425 million and offers shareholders $2.25 per share—a premium of more than 150 percent over Friday’s closing price—with completion expected in the first quarter next year.
As part of this transaction, Kemmons Wilson will provide Sotherly with a $25 million revolving line of credit at a floating interest rate immediately upon closing.
The DoubleTree Resort is situated between the Atlantic Ocean and Intracoastal Waterway in an area known for upscale hotels and condo-hotels. Nearby properties owned by Sotherly include Lyfe Resort & Residences (57 keys) and Hyde Beach House Resort & Residences (68 keys), both condo-hotels.
Sotherly purchased the DoubleTree in 2007 for $74 million; it was originally built in 1973 and underwent renovations most recently in 2017 when it became part of Hilton’s DoubleTree brand. The company refinanced its original Bank of America loan with a group including Morgan Stanley in 2021; as of now, the outstanding balance stands at $49.2 million with an interest rate of 4.9 percent.
Debt issues have recurred at this property since shortly after the onset of COVID-19 pandemic lockdowns forced widespread hospitality industry disruptions—the loan entered special servicing then but exited that status in 2021 as conditions improved.
Last year saw further difficulties when declining performance triggered a “cash trap” provision requiring all revenue be deposited into an account controlled by lenders; recent improvements allowed release from this restriction over summer months.
According to Morningstar Credit data cited in public filings, last December’s debt service coverage ratio (DSCR) was below breakeven at 0.97x but rose to 1.15x by June this year; occupancy averaged 68 percent last year.
Elsewhere, Sotherly also defaulted this summer on nearly $38 million owed on Atlanta’s Georgian Terrace hotel—seeking another extension there—or else faces paying down about $4 million if refinancing is necessary per SEC filings.
Looking ahead to next year, loans tied to other major assets—the DoubleTree by Hilton Philadelphia Airport and The DeSoto hotel in Savannah—are scheduled to mature.
