TRD Insights: Hotel CMBS delinquencies jumped in June

Think loans backed by retail and mixed-use properties are bad? Look at lodging

TRD NATIONAL TRD INSIGHTS /
Jul.July 06, 2020 01:05 PM
Lodging delinquencies among commercial-mortgage-backed-security (CMBS) loans rated by Kroll Bond Ratings Agency reached 21.6 percent last month, up from 13.6 percent in May. (iStock)
Lodging delinquencies among commercial-mortgage-backed-security (CMBS) loans rated by Kroll Bond Ratings Agency reached 21.6 percent last month, up from 13.6 percent in May. (iStock)

Hotels’ occupancy rates have been rising, but their loan troubles are through the roof.

Hotel delinquencies among commercial mortgage-backed security (CMBS) loans rated by Kroll Bond Ratings Agency reached 21.6 percent last month, up from 13.6 percent in May. That was the highest among all property types, with delinquencies on loans secured by retail and mixed-use properties at 12.8 percent and 9.4 percent, respectively.

Even though hotel loan delinquencies spiked last month, there’s some evidence that they might begin to level off. The percentage of CMBS lodging loans whose borrowers were late on their monthly payments in June fell to 6.4 percent, down from 12.4 percent in May 2020. A payment made within the 30-day grace period is late but the loan is not yet delinquent.

Single-asset CMBS hotel loans appear to be faring better than portfolio loans. All three of the Kroll-rated single-asset or single-borrower and large loan transactions transferred to special servicers since the pandemic started were backed by portfolio loans. Those loans, totaling more than $2 billion, were secured by 186 hotels across the country owned by Atrium Holding Company, Hospitality Investors Trust and Tom Barrack’s Colony Capital.

For lodging conduit transactions, or CMBS transactions backed by loans from multiple borrowers secured by multiple lodging properties, the delinquency rate is even higher. Conduit loans secured by lodging portfolios saw delinquencies jump to 24.4 percent in June, up from 15.7 percent in May.

Many hospitality companies loaded up on CMBS debt in the years leading up to the current financial crisis. Just as the coronavirus hit the United States, outstanding hotel CMBS debt ballooned to $85 billion.

Now the companies are struggling to get loan modifications from their special servicers, many of which are overwhelmed by a tidal wave of requests for relief.


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