Lodgian Hotel Portfolio Defaults (4.29% of MLMT 2005-MKB2)

CRENews

Lodgian Inc. said it has defaulted on $45.7 million of debt that was securitized through Merrill Lynch Mortgage Trust, 2005-MKB2.

The debt is backed by nine hotels with 1,421 rooms, but the debt allocated to three of the properties, with 372 rooms, previously had been defeased. Including the defeased portion, the debt has a balance of $62.8 million.

Lodgian, an Atlanta hotel REIT, in August had negotiated an extension, to Oct. 1, of the debt, which had originally matured in early July. It has since been trying to negotiate a longer-term extension of the financing.

This morning, the company said that unless "some agreement is reached in the near-term, the company intends to return the hotels to the lender in full satisfaction of the debt.

Lodgian previously had negotiated a long-term extension of two other securitized loans totaling $71.6 million. Some of the debt was made full recourse to Lodgian, which also had to pay sundry fees and must pay down principal.

The debt in the MKB2 deal carries a rate of 6.58 percent. Lodgian said the collateral's cash flow was "insufficient to meet the related debt-service obligations," which no doubt complicated its ability to get a further extension. The debt requires $4 million of annual service, while the properties generated $2.4 million of net operating income over the past 12 months.

The collateral properties for the non-defeased debt are:

- Courtyard by Marriott, with 90 rooms in Bentonville, Ark.;

- Courtyard by Marriott, with 78 rooms in Florence, Ky.;

- Holiday Inn Inner Harbor, with 375 rooms in Baltimore;

- Fairfield Inn by Marriott, with 116 rooms in Merrimack, N.H.;

- Courtyard by Marriott, with 99 rooms in Abilene, Texas, and

- Crowne Plaza, with 291 rooms in Houston.