Hotel Loan Delinquencies Increase
August 7, 2009
Recent forecasts for hotel delinquencies have not been good. In a recent Bloomberg article, Morgan Stanley is predicting that hotel loan delinquencies which are currently 4.7% are likely to reach 8.2% by the end of the year. This was the peak delinquency rate that was reach during the last downturn.
Trepp LLC, a provider of commercial mortgage-backed securities (CMBS) and commercial mortgage information, tracks hotel loans, including those in CMBS pools. According to Trepp, there are about 3,800 hotel CMBS loans. Of this amount, about 2,300 were done in 2006 and 2007. Almost none were done in 2008. According to the company’s report, in January 2008, 0.48 percent of all hotel loans in the CMBS pools were delinquent. In January of this year, the percentage increased to 1.72%. This month, it increased to 4.24 %, mirroring the number quoted above in the Bloomberg report. Some analysts are predicting a 15% to 20% default rate by the end of next year.
According to an article I read in HotelNewsNow.com, the California hotel market often mirrors what’s going on in the rest of the country. In California, the number of hotels in default or foreclosure increased 125% in 60 days (mid-May through mid-June). 31 hotels were foreclosed on, and 175 were in default. Nonfranchised hotels account for a disproportionate number of foreclosures—87%. However, what is even more shocking is that franchised hotels make up 59% of default properties. As the economy has worsened, all properties are affected, not just smaller hotels in tertiary markets.
Because of the expected large number of defaults and foreclosures, this will be the best buying opportunities since the 1990s. However, right now lenders are delaying the sale of the foreclosed properties since they are unable to take large losses by selling below the loan values. This will eventually change.