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Tuesday, 02 November 2010

Hotel-Sector Upswing Bodes Well for Delinquency Trend

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Commercial Real Estate Direct Staff Report

The hotel sector appears to have hit bottom this year, and by 2012 the growth in net operating income should begin to relieve some of the stress driving hotel-loan delinquencies.

According to a study by Colliers PKF Hospitality Research, hotel loans fare well when their debt-service coverage levels remain above 1.5x. Loans that fall below that level could be in jeopardy.

This year, 57 percent of the 365 hotel loans reviewed by Colliers PKF had coverage levels of less than 1.5x. And of those, 46 percent had coverage levels of less than 1.0x, according to Aaron Walls, research analyst at Colliers PKF.

But in the next two years, those numbers are projected to improve.

Walls predicts that next year the number of hotels in the sample with coverage levels of less than 1.5x will drop to 41 percent. In 2012, it'll drop further, to 29 percent.

Meanwhile, the number of hotels at serious risk of default (with coverage levels of less than 1.0x) is expected to decline to about 10 percent of the total sample by 2012, down from 26 percent in 2010.

Debt Coverage Ratio for Hotel Sample (Total 365 Hotels Nationwide)

Hotel Loan Coverage Levels

DCR

2008

2009

2010

2011

2012

Above 3.0x

63

32

35

42

54

2 - 2.99x

120

49

51

66

114

1.5 - 1.99x

95

68

72

106

90

1.3 - 1.49x

29

58

48

40

38

1.15 - 1.29x

18

30

38

25

24

1 - 1.14x

13

30

26

22

8

Less than 1.0x

27

98

95

64

37

Source: Colliers PKF Consulting

Colliers PKF bolstered its hotel-loan data with help from Trepp LLC. The sample set it used is comprised of loans on properties throughout the country, with Colliers PKF's data skewed towards full-service, higher-priced hotels. Trepp's data, which focuses on CMBS loans, is slanted toward smaller properties.

The analysis doesn't predict foreclosures, Walls said, but instead projects the magnitude of troubles for the industry. The data show that 2010 will be the final year hotels experience a depressed level of income generation in this market cycle, and the year is ending more strongly than was predicted. Even properties that have questionable viability are moving toward profitability.

However, Walls expects only gradual improvement in 2011 and by 2012, hotel-income levels should grow enough that stresses on hotels will begin to be relieved.

Room rates are not expected to increase much until the middle of next year, when occupancy improvements will justify rate increases.

Comments? E-mail Anita Nolan or call her at (267) 247-0112, Ext. 212.



Copyright © 2010 Commercial Real Estate Direct www.crenews.com

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Additional Info

  • Syndicate to Realpoint: No
  • Sector: Hotel & Resort
  • Subject: Mortgages/Financing (MOR), Research (RES)
  • Deal Name: Bear Stearns Commercial Mortgage Securities Trust, 2006-PWR12
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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2017
Investment Bank #Deals Vol$mln MktShr%
Goldman Sachs 17.59 11,819.34 13.68
JPMorgan Securities 14.52 10,968.11 12.70
Citigroup 12.04 10,012.71 11.59
Wells Fargo Securities 14.02 9,936.06 11.50
Deutsche Bank 12.55 9,879.74 11.44

 

RCA CPPI

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2017
Lender #Loans Vol$mln MktShr%
Goldman Sachs 146.89 11,719.34 13.63
JPMorgan Chase Bank 117.68 10,114.14 11.76
Deutsche Bank 198.48 9,689.97 11.27
Morgan Stanley 166.18 8,539.78 9.93
Citigroup 199.05 8,088.24 9.41

 

 

 

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