In a recent study, Fitch found that 50% of upscale and luxury hotels that back recent-vintage CMBS may fail to throw off enough cash flow to cover debt service by the end of this year, thereby rendering US CMBS transactions with large concentrations of hotel loans ripe for downgrades.
Fitch managing director Eric Rothfeld attributes this trend to a slump in both consumer and business spending. And he does admit he was a bit surprised by what the data uncovered.
"Fifty percent is a big number," he says. "We didn't anticipate it would be that high. But it's an indication of the vulnerability these hotels have in a downturn."
Fitch reviewed $6.5 billion of high-end hotel loans included in 2006 and 2007 Fitch-rated fixed-rate US CMBS. Such properties, according to the rating agency, have seen their room revenues fall more than 20% from 2008 levels, which, in turn, would result in net cash flow declines of between 35% and 40%.
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