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One in Four Hotels May Go Delinquent on Loans

One in Four Hotels May Go Delinquent on Loans
Joe Cortez

New data sent to Congress suggests one in four hotels could miss their mortgage payment, because of lost revenue due to a lack of passengers. The data from Tripp shows delinquency rates spiking with local lockdowns from the COVID-19 pandemic, which could result in some properties closing.

Hotels may be in more trouble than the industry realizes. The latest data from consulting firm Trepp shows commercial property loan delinquency rates for hotels are at all time highs, suggesting nearly one in four hotels are behind on their payments.

Hotels at Alarming Risk of Foreclosure

The all-time high numbers were shared with members of Congress, as an example of the financial crisis affecting the travel and tourism industries. As COVID-19 cases continue to rise across the United States, and governments continue to cautiously open certain aspects of the economy, hotels continue to struggle to gain customers.

Although other loans were able to get “cured” through grace periods and loan restructuring, the hospitality industry has record-high instances of delinquency. In July 2020 alone, 23.79 percent of hotel properties were delinquent on their loans.

“With record low travel demand, thousands of hotels can’t afford to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently,” Chip Rogers, president and CEO of the American Hotel and Lodging Association (AHLA), said in a press release. “Tens of thousands of hotel employees will lose their jobs and small business industries that depend on these hotels to drive local tourism and economic activity will likely face a similar fate.”

The hotel industry is doing everything they can to encourage travelers to return to their properties. Hilton Honors is extending status and introducing rollover nights, while Wyndham Rewards is lowering their status requirements. In addition, the AHLA has introduced new guidelines to keep travelers safe when they are staying at hotels, including mandating social distancing and face coverings in all common spaces.

The trade group, along with 4,000 hotel industry leaders, sent letters to Congress with the data, while asking the group to pass the HOPE Act. While not a phase four support bill, the bi-partisan measure would provide support to small businesses.

Hotels Continue to Struggle Without Aviation

Just as the aviation industry has suffered throughout the COVID-19 pandemic, the hotel industry has similarly been affected. New data from STR and Tourism Economics suggest hotel recovery is regional, with drivable destinations faring better than those dependent on aviation. Regardless, the entire industry may not see pre-COVID guest levels until 2024.

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1 Comment

  1. SamirD

    August 21, 2020 at 6:27 am

    Having been in this industry for a better part of my entire life until recently, I knew that this was coming and can only imagine where our properties would have been if we still had them.

    The single biggest monthly expense in this industry is typically the debt service or mortgage payment. And the second being payroll. And if you’re not making the mortgage payment, payroll is also going to have problem. These two expenses together amount to more than 50% of monthly expenses. Not a bad thing when you have occupancy rates of over 50%, but you will not be able to survive on 35% occupancy rates. :'(

    The biggest driver behind the drop in occupancy rates is the same thing that’s hurting the airlines–the lack of business travel. Business travel can account for as high as 90% of the revenue for most properties. Leisure travel being just a ‘fill in’ unless it’s a ‘destination’ property. And there’s no real sign that this travel will ever return as many business have permanently moved to working remotely–especially when safety in the pandemic is still a serious problem.

    The fate of the industry really depends on how long the banks will allow forbearance for the payments. Perhaps moving to an ‘interest only’ model will help properties that have some equity built up. But almost any way you look it at, the outlook is bleak for the next few years.

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