Hotels have started missing loan payments in April as rooms sit vacant during the coronavirus pandemic, and borrowers’ rush to get relief is straining specialty commercial mortgage servicers charged with deciding which innkeepers will make it.
Payments have been missed, or grace periods granted, this month in connection with nearly 20% of securitized hotel loans, soaring from less than 1% in March, according to data tracked by the analytics firm Trepp.
Much like the residential mortgage servicing industry, the strain on servicers of commercial mortgage-backed securities has started to show.
One large CMBS servicer who asked not to be named in order to talk freely about recent events said his company had historically handled between 100 and 150 special requests from borrowers each month. It is now handling about 2,000 requests for relief made over the last four weeks.
The company has been aggressively adding asset management staff to support the unprecedented volume, which is expected to continue indefinitely. Hotels took almost four years to recover the revenue per available room lost after the 2007 financial crisis, the servicer said.
“We’re concerned it’s going to be a long, slow recovery,” the servicer said. “You’ll see a fairly significant number of older, limited-service hotels and retail that just can’t make it."
The Biden administration once again extended the pause on student loan payments enacted to help borrowers during the COVID-19 pandemic, this time through the end of August.
The two states' combined plans amount to over $1.5 billion of the Homeowner Assistance Fund included within the American Rescue Plan Act , which was passed a year ago.
An uptick in pandemic-related payment suspensions reflecting new or restarted plan activity previously occurred as the omicron variant spread, but activity has since subsided.
A prolonged shutdown is likely to cripple the industry and cause problems for their debtholders.
About 60% of the roughly 2,000 hotels surveyed by the commercial real estate firm CBRE earlier this month said they had two months or less worth of reserves to meet their debt obligations.
Fewer than half were able to receive modifications or other concessions from their lenders. More than 71% said they were considering closing, the survey showed.
And the Trepp data for April, the clearest picture yet of the struggle, could get even worse as more information trickles in for the month.
For example, revenue per available room, a key metric watched by the industry, came in at $17.43 for the week ending April 18, down 79.4% from the same week one year earlier, according to the hotel data firm STR.
Manus Clancy, senior managing director at Trepp, and Catherine Liu, an associate manager at the company, wrote in an April 15 research note that if the percentages for delinquent payments or those entering a grace period hold, about $15 billion of the $76 billion in CMBS hotel loans they track could have problems.
Tim Mazzetti, managing director at SitusAMC and the head of the company’s servicing and asset management team, said in an email that it too have been staffing up to the meet workout demand. The company handles about $20 billion in distressed commercial real estate assets and $100 billion in loans securitized into CMBS.
Mazzetti said hotels that are currently under construction were a particular problem, especially in areas where executive orders have halted job sites, but SitusAMC was still working with borrowers where they could. He said it was too early to tell for sure how much of the hotel industry would survive.
“The next 60-90 days should provide additional clarity into how deep and long the downturn will last and the impact on organizations,” Mazzetti said in an email.
Some hotels received a bump as front-line responders like nurses, doctors and paramedics in hard-hit cities took up rooms to quarantine while they rested from battling the virus, according to Jan Freitag, STR’s senior vice president of lodging insights.
Average occupancy in New York, for example, was 33% for the week, and while that was down about two-thirds from the same period last year, it was above the national occupancy average of 23%, STR data show.
Still, hotels are reaching for government funding to stay in business but are not receiving as much support as other industries. About $30 billion, or nearly 9%, of the first round of Paycheck Protection Program funding went to hotels and restaurants, which was about 50% less than what construction companies received, according to Small Business Administration data.
The industry’s main trade group, the American Hotel and Lodging Association, sent a letter to the Treasury Department and the Securities and Exchange Commission on April 16 asking for a $10 billion CMBS market relief fund that would be part of the
Under the association’s proposal, hotel operators that were still current on their CMBS loans but were seeing their reserves disappear could apply money they receive through the program directly to their debt payments in order to keep that market functioning. The association said it was still pushing for this carve-out as of this week.
New data from the association released Friday showed about 70% of hotel employees have been laid off or furloughed as about eight in 10 rooms are empty.
“Without action to shore up CMBS loans, this will lead to mass foreclosures and will snowball into mass disruption and a lack of liquidity in the asset-backed securities marketplace,” AHLA President Chip Rogers said in an emailed statement.
