More Distress for Hotel Lenders

August 17, 2009


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I recently posted a report regarding the recent increase in hotel loan delinquencies on August 7th.  Now an article in the Wall Street Journal entitle Hotels Deliver Some “Jingle Mail” speaks of a rise in hotel forfeitures being the greatest since the early 1990’s.  The article states that distressed “noncasino” hotel loans now include over 1,000 properties with a cumulative loan value of $16.8 million.  The article gets its statistics from Real Capital Analytics, and encompasses delinquencies, foreclosures, bankruptcies and restructurings of securitized mortgages in addition to loan from banks and other institutions.

The article points to a topic I discussed in a post written on July 8th (see An Inside Look into the Commercial Real Estate Mess) – the difficulty of restructuring loans that were packaged into commercial mortgage-backed securities (CMBS). 

The particular problem associated with hotel loans is that unlike other types of real estate such as malls and office building with long-term leases, hotels have daily rentals and can empty out overnight.  Such was the case in a number of recent highly publicized foreclosures involving the Mondrian boutique hotel in Scottsdale, AZ, the ST. Regis resort in Dan Point, CA and the W in San Diego, CA.

What’s interesting in this article is the strategy used by Sunstone Hotel Investors, a Southern California-based lodging real estate investment trust and the owner of the W San Diego and many other hotels.  They are simply walking away from some of their 39 upscale hotels and are using this strategy to get the loan servicer to agree to new terms with the bondholders on other transactions.

According to a noted hotelier quoted in the article, “Forfeiting a property to a lender doesn’t have the same stigma attached to it in this cycle as it did in past cycles”.


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