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Recession Leaves Hotel-Backed CMBS Vulnerable to Defaults

NEW YORK CITY-As fundamentals in the hotel sector deteriorate rapidly, lodging property loans are increasingly vulnerable to defaults. And it's not just the high-end properties that are feeling the pain.

By Maria Wood | Updated on April 23, 2009

NEW YORK CITY-Recent studies–by both Fitch Ratings and Standard & Poor’s–indicate that CMBS loans collateralized by hotel properties are subject to duress in the current economic climate. Most vulnerable are luxury and upscale properties, but mid-scale hotels with food and beverage outlets are getting hit hard as well.

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.

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