The Real Deal New York

Soho Grand and five other hotels seen as possible credit risks

September 02, 2009 05:31PM
By Adam Pincus

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From left: the Soho Grand Hotel, Tribeca Grand hotel and the Maritime Hotel are possible credit risks

The troubled hotel climate in Manhattan prompted securitized loan servicing firms to characterize five mortgages for hotels, including the Soho Grand, as potential credit risks last month.

The move doubles the number of Manhattan hotels on so-called watchlists to 11.

The largest loan is for a $195 million note covering both the Soho Grand and Tribeca Grand, which are both owned by Hartz Mountain Industries. The loan was put on the watchlist in part because the hotels do not generate enough cash to cover the debt service payments, its servicer report says.

Another hotel, the Maritime Hotel in Chelsea, saw its daily room rate drop 43 percent in 2009 compared to last year, inducing its servicer to put it on a watchlist.

The other loans were for Residence Inn Times Square; Roosevelt Hotel in Midtown; and the Time Hotel in Times Square, the data shows.

Those six hotels were in addition to five others that had previously been put on the ongoing lists, meaning about a quarter of the more than 40 securitized hotel loans in Manhattan are on watchlists, according to a review of servicer data by The Real Deal.

But in spite of the watchlist status, all the hotel loans were considered performing, according to their servicers’ reports. Loans are put on a watchlist if servicers believe there is a potential credit risk. Loans that have more severe difficulties and have become delinquent are sent to special servicing.

Only one hotel loan in Manhattan has been transferred to special servicing: the $100 million loan on Hampshire Hotels & Resorts’ Dream Hotel at 210 West 55th Street, which is more than 90 days delinquent and is being modified, according to data from commercial loan tracking firm Trepp. Time Hotel is also owned by an affiliate of Hampshire Hotels & Resorts, a hotel owner and operator based in Manhattan.

The hospitality industry is being battered by low occupancies and dismal revenues.

The most recent hotel report from advisory firm Smith Travel Research shows that the hotel occupancy rate in Manhattan was 80 percent in July, a 6 percent drop from the same month a year earlier. Revenue per available room, or revpar, in July fell 32 percent to $147 from $217 in July 2008, and in the same period average daily room rates dropped 27 percent to $182 in 2009 from $251, the Smith Travel data indicates.

As in the broader commercial market, many hotel loans were packaged into commercial mortgage-backed securities at the height of the market, and many are now viewed as overleveraged today.

“The way these hotels were [leveraged], if there is just a light decline in operating performance they are totally underwater,” distressed assets analyst Ben Thypin of Real Capital Analytics said.

Net income from the Soho Grand at 310 West Broadway and the Tribeca Grand at Two Avenue of the Americas together only covered 81 percent of the monthly debt payments on their $195 million loan, the loan servicers report says.

Meanwhile, the $25 million loan on the Maritime Hotel at 363 West 16th Street was suffering because the hotel was only at 53 percent occupancy, servicer notes say.

A spokesperson for the Maritime Hotel said it continued to be profitable with high occupancies despite a lower room rate.

“We cannot comment on what the loan servicers are doing, only to say that we have met all of our debt service payments and other obligations and we have not heard anyone express concern to us,” the hotel spokesperson said in an e-mail.

The other hotel borrowers did not respond to requests for comment.

The $96.6 million loan at the Roosevelt Hotel at 45 East 45th Street was due in November 2008, and the “borrower provided written intent to extend the loan,” the servicer notes said.

Servicers on the other two loans — the $143 million loan at Residence Inn at 1033 Avenue of the Americas, and the $55 million loan on the Time Hotel at 224 West 49th Street — did not provide explanations for why the loans were added to the watchlists in the servicer data.

There is little on the horizon that would give hoteliers hope for a near-term recovery, said hospitality advisor Geoffrey Davis, president of Manhattan-based HREC Investment Advisors.

“There were a lot of owners saying we think we will get a bump over the summer. But obviously it did not materialize. And there is no way to think they will get a bump in the fall,” he said.

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