"Banks, insurance companies and non-bank financial institutions have a great deal of flexibility in how they deal with those mortgages and borrowers," Loeb points out. "CMBS special services have very narrow rules. It's much easier to work out a loan with a traditional lender than it is with a CMBS lender. After all, it's not the originator of the loan you are working with. They are far out of the picture, and the REMIC rules are very tight about how you can modify these loans."

Loeb says that in the public lodging world he normally covers, the companies are more conservatively financed. Not so for hotels owners who used CMBS debt. "There must be a tremendous amount of pain relative to leverage in the private world and that will lead to more defaults and foreclosures long before maturity for some of these loans."

The biggest hurt will be felt by holders of CMBS debt and those buyers who overpaid for lodging assets. However, Loeb asserts that all owners of lodging properties stand to suffer when the tidal wave of distressed assets up for sale. "As a result of the way the industry is financed today and what happened with cash flows and therefore what is happening with values," Loeb says, "we may see cap rates rise because of the glut of assets coming to market. All owners of hotels may see the value of their investments decline."

And make no mistake, the properties that back CMBS run the gamut from mid-scale properties to the top of the luxury market. "This type of mortgage origination was done across the spectrum," Loeb states. "It's all types of hotels. The distress is more focused on the larger transactions and the higher-end hotels, primarily because we've seen a bigger drop in the cash flow at the higher-end hotels. This is the issue that people will be talking about in the hotel industry for the next five years, maybe longer. Unless we see some sort of RTC-style mechanism where the government is involved in the resolution of these mortgages, it's going to be messy and for a long time."

If there is one savior on the horizon, it could be the public markets. Some of the more well-capitalized public companies, such as Host, Diamond Rock, LaSalle and Sunstone, are in a position to pick up some of the distressed assets. Or pools of these assets could be packaged for sale on the public market. "Public capital," Loeb predicts, "is one of the most likely sources to heal the wounds from this financing phenomenon."