Sunstone Prepared To Turn Over W San Diego To Bank

SAN CLEMENTE, Calif. (AP) — Sunstone Hotel Investors Inc. said Sunday it will default on the June mortgage payment for its swanky W Hotel San Diego property and turn over the 258-room downtown hotel to lenders, after failing to lower interest payments.

The real estate investment trust said Sunday its San Diego hotel has been hurt by "significant and continuing deterioration in demand for luxury lodging" as well as the opening of luxury boutique hotels, two additional Starwood-branded hotels and a 1,190-room convention hotel nearby.

Sunstone purchased the W San Diego in June 2006 for $96 million from developers including Starwood Hotels, Gatehouse Capital and Multi-Employer Development Partners. The hotel carries a $65 million, fixed-rate commercial mortgage-backed securities loan with a 6.14 percent interest rate, which comes due Jan. 1, 2018. The mortgage principal translates to more than $250,000 in debt per room.

San Clemente, Calif.-based Sunstone said its loan special servicer has declined the company's attempts at renegotiating interest payments lower. Since Sunstone feels the W San Diego is now worth much less than what it owes, the company would rather turn it over to the bank than have hefty interest payments continue to drain cash from its balance sheet.