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UPDATE 1-Red Roof defaults on $361 million commercial loans

(Adds company comment, background)

NEW YORK, June 23 (Reuters) - Red Roof Inns Inc, the discount hotel chain with nearly 350 properties, became the latest in the downtrodden hospitality industry to default on debt made during the credit-driven real estate boom, the company confirmed on Tuesday.

Four Red Roof Inns loans totaling $361.4 million were 30 days delinquent in June, and have or will be handed over to a special servicer, which deals with troubled loans, said Frank Innaurato, a managing director at Realpoint, a credit rating company. The loans are secured by 131 locations, he said.

Hotels have been among the hardest hit assets in U.S. commercial real estate as the lingering recession causes consumers to pull back on travel.

Across the industry, falling occupancy last year resulted in a 23.2 percent drop in revenue per room at hotels that are collateral for commercial mortgage bonds, according to a recent Realpoint report.

What is more, frozen credit markets have limited refinancings on billions of dollars in commercial real estate debt, resulting in a wave of defaults and exacerbating the impact of the recession.

Special servicing companies flooded with work are often extending loans, but also forcing borrowers to take greater risks, such as adding more equity.

Columbus, Ohio-based Red Roof Inns in an email said “due to the current state of the lodging industry,” it is negotiating with lenders to restructure debt related to the acquisition of real estate assets of the company.

“While the company is profitable on an operating basis, Red Roof believes that a debt modification is the best way for the company to manage through the current downturn and position itself for future growth,” it said in the statement.

It is completing a $250 million renovation.

Citigroup Inc's C.N Global Special Situations Group and the Westbridge Hospitality Fund LP purchased Red Roof Inns for $1.313 billion in September 2007 from Accor, a French hotels and business services group.

The Red Roof loans are collateral for commercial mortgage-backed securities (CMBS), structures that have complicated restructurings since many investors are involved. General Growth Properties Inc, the No. 2 U.S. mall owner, blamed CMBS investors for its decision to file for bankruptcy protection.

Extended Stay Hotels last week filed for bankruptcy protection, noting that projected revenue would not be enough to service its high debt load, including loans in CMBS.

Red Roof’s restructuring talks have been constructive, and a positive resolution is expected in due course, it said. Its operations are unaffected, it added

The balance of all troubled U.S. commercial real estate loans soared by 48 percent last quarter to $23.7 billion, according to Fitch Ratings. The number of loans sent to special servicers, which specialize in loans either in default or at risk of default, will likely jump again this quarter following the General Growth bankruptcy, Fitch said. (Reporting by Al Yoon; Editing by Christian Wiessner)

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