80% of NYC hotels backing CMBS loans show signs of distress

Occupancy rates have improved since April, but only reflect establishments still open

Hotel Association of New York City CEO Vijay Dandapani and Hilton Times Square (Getty)
Hotel Association of New York City CEO Vijay Dandapani and Hilton Times Square (Getty)

The travel industry has been so ravaged by the coronavirus that even a vaccine may not come soon enough to save most hotels in New York City.

If half of the city’s 640 hotels survive, it would be a “great” outcome, Vijay Dandapani, chief executive of the Hotel Association of New York City, told the Financial Times.

Occupancy rates in hotels that remain open are still far below normal. In September they were 20 percent lower than the same period last year. That’s still better than in April, when hotel occupancy was 60 percent lower than during the same period in 2019, according to hospitality industry research firm STR.

News Monday of a promising vaccine sent real estate stocks soaring, but Dandapani said the vaccine would have “zero impact” on the hotel industry this year, although some tourists could return in 2021.

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In New York City, which in the spring was the global epicenter of the pandemic, $4 billion in hotel mortgages are packaged into securities. After business tourism all but disappeared, 80 percent of hotels underpinning those investments are showing signs of distress, the Financial Times noted. The figure for hotels nationally is 71 percent.

That means the securitized loans on those hotels have been watchlisted for distress or have already been transferred to special servicers, which could move to foreclose.

Some hotels have tried new strategies to rent their rooms. Hotel giant Hilton, which reported a net loss in the third quarter, has offered flexible office space as business travelers have disappeared.

Some hotels, like the 476-room Hilton Times Square, which closed permanently in October, have given the keys back to lenders. The property’s mortgage, which backs a $76.5 million loan that is part of a 2011 CMBS deal, had already been delinquent for 90 days by August. The hotel is now valued at $61 million, less than 25 percent of its 2010 valuation of $246 million.

[FT] — Georgia Kromrei