Hotel Loan Defaults Double In Second Quarter
“Luxury hotel boom: denver and colorado’s mountain resorts build to suit upper-upper upscale occupants.”
-ColoradoBIZ, July 1, 2006
“The stage is set for Nashville hotel boom as indicators favor expansion”
-Nashville Business Journal, January 19, 2007
“In Las Vegas, Too Many Hotels Are Never Enough”
-New York Times, April 24, 2007
“NYC Hotel Boom Could Help Ease Room Shortage”
-CBS 2 (New York City), December 16, 2007
“Tulsa enjoys hotel boom”
-The Journal Record (Oklahoma City), January 2, 2008
From Bloomberg’s Nadja Brandt and Dan Levy today:
As many as one in five U.S. hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen.
The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion this quarter, said analyst Jessica Ruderman.
“Hotels without question will have the highest foreclosure rate of any commercial real estate sector,” said Rosen, who runs a real estate hedge fund with $310 million in assets and is chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.
Hotel owners are defaulting as room rates and property values tumble and the securitized mortgage market that fueled an 88 percent gain in U.S. commercial prices from 2001 to late 2008 is dormant.
Luxury hotel revenue fell 28 percent in April from a year earlier and has dropped for 12 straight months, according to Smith Travel Research Inc. in Hendersonville, Tennessee. The 29 percent decline in March was the biggest since October 2001.
A third of the $8.6 billion in securities backed by hotel loans due in 2010 are at risk of defaulting, data compiled by credit-rating firm Realpoint LLC in Horsham, Pennsylvania, show.
Guerrilla marketing?
Source:
“Hotel Loan Defaults Double as Recession Cuts Travel (Update2)”
Nadja Brandt, Dan Levy
Bloomberg, July 1, 2009
July 2nd, 2009 at 5:38 am
One thing that strikes me about a hotel default is that it makes things worse for the remaining non-defaulting hotels.
By this I mean that forclosed hotels will be purchased at a price which makes them profitable at the new lower room prices and occupancy rates.
This means that a forclosure of a hotel chain increases the chances that the remaining hotels will default as they will have to compete with a lower cost base. (as compared to say ordinary retail where a store such as circuit city simply shuts up shop and stops competing with similar stores).
July 2nd, 2009 at 7:54 am
Thanks for the comment matlock.
“One thing that strikes me about a hotel default is that it makes things worse for the remaining non-defaulting hotels.”
Makes sense.
July 2nd, 2009 at 1:04 pm
What’s bad for speculative hotel investors is great for tourists. At least in the short term.
Go to Priceline.com and bid low. You can get superb hotel rooms for more than 50% off list. I recently paid $80/night for 4 star rooms in prime locations in New Orleans and Philadelphia.
Hard-pressed hotel franchisees are frantic to fill rooms without actually advertising rate cuts.
July 3rd, 2009 at 8:36 am
Thanks for sharing that info Farrar.