Luxury hotel owners risk defaulting on their debt as the recession cuts occupancies and the credit crunch constrains refinancing.

Loans secured by more than 1,500 hotels with a total outstanding balance of $24.5 billion may be in danger of default, according to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities. Some of the biggest loans, which have been put on the Horsham, Pa., company's watch list because of late payments, decreasing occupancies or cash flow, were made to luxury properties where rooms can cost more than $850 a night.

"All segments are showing signs of distress, but the luxury segment carries much higher loan balances and is more clearly affected," Frank Innaurato, managing director of CMBS analytical services at Realpoint, said in a telephone interview.

Lodging owners are struggling after adding rooms and properties at the peak of the CMBS market from 2004 to 2007, when $83.4 billion in hotel-backed securities was issued.

Occupancy among chains with the costliest rooms fell to 60% in the first half from 70% a year earlier, according to Smith Travel Research. The decline was the industry's largest for that period.

"Luxury hotels have been aggressively financed during the peak CMBS issuance years," said David Loeb, an analyst at Robert W. Baird & Co. "That's why luxury hotel loans crowd these watch lists."

A $90 million loan secured by the Four Seasons San Francisco, a 277-room, five-star property, is 90 days delinquent and foreclosure proceedings have begun, according to Realpoint.

A notice of default has been filed, according to Bloomberg data.

The borrower was Millennium Partners LLC, a real estate firm founded in 1990 by Christopher Jeffries. The company controls 1,860 residential units, more than 2,000 hotel rooms and 1 million square feet (93,000 square meters) of office space, Realpoint said.

A spokeswoman for Four Seasons San Francisco did not respond to requests for comment. Jeffries didn't return a call.

The Dream Hotel, a 220-room hotel on West 55th Street in New York City that features 300-thread-count Egyptian bed linens and iPods, is collateral for a $100 million loan taken by Surrey Hotel Associates LLC that is at risk of default, Realpoint said.

The borrower is trying to restructure the debt and defer payments, said Riyaz Akhtar, vice president at Surrey.

"What's happening to us right now is happening, and will continue to happen, to many hotel properties given the current market," Akhtar said.

The loan delinquency rate for U.S. hotels may climb to 8.2% by yearend, Morgan Stanley analysts led by Andy Day said in a June 23 report. That would match the peak from the last recession in 2001.

Upscale hotels are suffering from "a heightened focus on prudent corporate travel expenditures," as well as the pullback in vacation travel, Day said.

The number of luxury-brand rooms in the U.S. as of the end of July rose 9.1% from a year earlier, to 100,000, Loeb said.

A $190 million loan secured by the 640-room Arizona Grand Resort is 90 days delinquent, according to Realpoint. If the loan is liquidated it may lead to a $111.9 million loss, the credit rating company said.

The property's occupancy rate fell to 64% as of December 2008 from 70% a year earlier, Realpoint said. The borrower, Pointe South Mountain Resort LLC, declined to comment.

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