Lack of Business Travel Pressuring Hotel Loans
New York, NY, July 1, 2009--As many as one in five U.S. hotel loans may default through 2010 as companies spend less on travel.
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, according to data compiled by Real Capital Analytics Inc.
The research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion next quarter. It said the sector will have the highest foreclosure rate of any commercial real estate sector.
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.
“Rates, revenue and cash flow levels across the hotel industry are projected to continue to decline,” said Frank Innaurato, managing director of CMBS analytical services at Realpoint. “If those projections stay true, a lot of these hotel loans that are scheduled to mature are at high risk of defaulting.”