Houston ranked nation’s worst hotel market
Low occupancy, high delinquency and decreased cash flow are factors
(Illustration by The Real Deal with Getty)
Houston, we have a problem — and this time, it’s hospitality. The metropolitan area’s lodging industry failed to bounce back post-pandemic, and TREPP ranked it the worst hotel market in the nation.
The industry is struggling due to low occupancy rates, high delinquency and a decrease in cash flow, according to a March report by Trepp.
One-third of Houston’s lodging properties experienced a decline in net cash flow growth, with almost 69 percent of properties in the metro having a debt service coverage ratio of less than 1x, the report found. That puts them at risk of defaulting on their loans if they cannot generate enough income to cover debt payments.
Since January 2020, 14 lodging loans have been resolved for a loss in Houston, totaling nearly $67 million in realized losses across the city. The largest loan to resolve for a loss this year was a $29 million Marriott Galleria loan in January, which resulted in losses of $13 million. The 14-story full-service hotel last received a payment in March 2020.
Houston has been grappling with a surge in hotel deliveries due in part to pandemic delays, which could explain low overall occupancy numbers as new projects vie for consumer attention. RREAF and Innisfree announced in February the development of a $110 million resort on Galveston’s East Beach. And a previously pandemic-shelved project, a five-story boutique hotel called the Daphne, is moving forward with development in the Heights and plans to open its doors next year.
Occupancy, however, has a weighted average of 53 percent, one of the lowest in the country, showing a struggle to attract guests over a 12-month period.
A separate report by the Business Journals found that Houston’s hotel occupancy rate lags 4.5 percent behind its 2019 performance. That is based on a 28-day average that ended on Dec. 2, 2022. In contrast, markets outside the top 25 metros have seen a combined post-pandemic increase of 1.5 percent, indicating signs of sharper recovery while the Bayou City has been slow to rebound.
In January, an LP called CenterPoint Partners @ Texas II filed for Chapter 11 bankruptcy on Hampton Inn on Interstate 10 East.
However, there are signs of hope for Houston’s lodging industry. The city has seen a bounce back in its core life science and energy industries, leading to an increase in business opportunities and corporate travel. Several major companies, including NRG Energy, Hewlett Packard Enterprise and ExxonMobil, have relocated their headquarters to Houston in recent years.
Houston is also set to host the NCAA Final Four at the end of March, which is likely to offer a short-term boost to the city’s hospitality sector. However, with the highest percentage of delinquent loans out of the 50 largest metropolitan areas, the city has a long way to go before it can rebound to pre-pandemic levels like its metropolitan counterparts.
Correction: A previous version of this story misidentified the owner of Hampton Inn on Interstate 10 East.