Hotel CMBS loans worth $2B fall into special servicing

Single-borrower loans suffer from lack of diversification as virus slams lodging

TRD NATIONAL /
Apr.April 16, 2020 03:00 PM
Courtyard by Marriott Boston Downtown. Homewood Suites Chicago and Sheraton San Jose Hotel (Credit: Google Maps)
Courtyard by Marriott Boston Downtown. Homewood Suites Chicago and Sheraton San Jose Hotel (Credit: Google Maps)

As the coronavirus roils the commercial-mortgage backed securities market, loans on hotel properties have been ahead of the curve when it comes to delinquencies and special servicing.

Three massive CMBS hotel portfolio loans, covering 186 hotels with a total outstanding balance of about $2 billion, were among the largest to be transferred into special servicing so far this month, Commercial Observer reported citing Trepp. Single-borrower transactions backed by only hotels have been the hardest hit of all.

“Of the top 24 loans that were sent to special servicing with the April remittance cycle to date, all but three have been hotel loans,” Trepp analysts wrote in a Thursday update.

The three big portfolio loans are all of recent vintage, having been originated in 2018 and 2019.

The most recent was a $752 million loan on the 92-hotel HIT portfolio, which included Homewood Suites Chicago Downtown and the Residence Inn Los Angeles-El Segundo among other properties. A Morgan Stanley-led group originated the loan last May, and more than a dozen of the hotels in the portfolio have already been paid off. But the debt backed by the remaining hotels in the deal was moved to special servicing due to “imminent monetary default.”

The servicer on another deal, the Tharaldson Hotel portfolio loan, provided more detailed commentary. The borrower, Tom Barrack’s Colony Capital, had requested a 90-day deferral for debt payment as well as suspension of various deposits and other accommodations, which the master servicer could not provide. The $777 million loan covered 135 hotels at issuance in 2018, about a third of which have since been released since.

Colony, formerly a junior mezzanine lender on the Tharaldson portfolio, had gained control of the hotels — mostly in California, Nevada and Texas — in 2017 when the previous borrower failed to secure refinancing.

Finally, a $720 million loan on the Ashford Highland portfolio was also put into special servicing, but no detailed commentary was provided.

Last month, Kroll Bond Rating Agency assigned a “Underperform” outlook to all single-asset single-borrower lodging deals that it was tracking — including the Tharaldson portfolio — citing a likely decline in occupancy to around 10 percent as had been the case in China and Italy.

Occupancy at U.S. hotels fell to 21 percent during the week ending April 11, according to the hospitality data firm STR. That’s a 70 percent drop from a year ago.

“If occupancy levels among KBRA-rated CMBS SASB lodging properties fall to this level for an extended period, none would be able to achieve breakeven debt service coverage,” Kroll analysts wrote. [CO]Kevin Sun

(Caption: top to bottom: the HIT, Tharaldson, and Ashford Highland portfolios. Source: Trepp)
(Caption: top to bottom: the HIT, Tharaldson, and Ashford Highland portfolios. Source: Trepp)

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