Investors are looking for heavily discounted properties, and at $59 million, the DoubleTree isn't a bargain, says hotel broker and consultant Christian Charre, president of Bridgerock Capital in Coral Gables.

Gramercy has been fighting for more than a year to collect the delinquent loan. SF Hotels refinanced the property with a $40 million loan from Gramercy in March 2007. Around that time, SF Hotels reflagged the hotel from a Radisson to a Sheraton under a 20-year franchise deal.

A year later, Sheraton yanked its franchise, claiming the hotel didn't meet its standards. Gramercy filed the foreclosure suit a day after Sheraton removed its flag. The hotel later became a DoubleTree.

In May 2008, SF Hotels filed for Chapter 11 bankruptcy protection from its creditors. That put the foreclosure on hold until March 2009 when a federal bankruptcy judge in Orlando agreed to let the foreclosure move forward. The property includes the hotel, a 150,000-square-foot exhibitions center and parking lots that could be redeveloped.

"In the right hands—a new owner with fresh, patient capital and a business plan that takes into account the hotel's location next to the Miami Mart, the convention center and the land for development—this project should be extremely successful," says Robert Kaplan, who was initially appointed receiver by Miami-Dade Circuit Judge Gill Freeman as part of the foreclosure action. Kaplan was replaced by Elena Escamilla in Orlando when SF Hotels filed for bankruptcy.

Excluding vacant parcels, foreclosure auctions of large commercial properties have been rare during the current South Florida real estate downturn. Yet the number of commercial loans in default is growing, both nationally and across the region.

Delinquent loans on South Florida commercial real estate totaled nearly $1.8 billion in the second quarter, up from $1.5 billion in the first quarter, according to Real Capital Analytics, a real estate research firm. The $3.3 billion of troubled loans in the first half of 2009 is approaching the $4 billion in all of 2008.

Many owners, facing declining values and income and the sluggish credit market, have been unable to refinance debt. Many lenders, who are reluctant to foreclose on properties that could be expensive to maintain and operate, have tried to work out loan extensions or sell notes at deep discounts.

Gramercy could be one of the first lenders to complete a foreclosure procedure involving a large commercial property in South Florida. "They won't be able to get [$59.1 million]," predicts Bridgerock Capital's Charre. "So they will become the owner."

Charre adds that buyers are aggressively chasing discounted properties that could generate at least a 20% return on their investments, but the DoubleTree's debt would not provide that return. Since few South Florida hotels the size of the DoubleTree have sold recently, it's hard to determine the value of the property, he says.

The Zaczacs also face the loss of a 340-room Sheraton hotel in Orlando. Gramercy claims the Zaczac company that owns that property, CF Hospitality, owes it more than $40 million. A foreclosure auction was scheduled for the Orlando property last week but was postponed, and the lender requested it be canceled.