2010: The Dawn of a New Decade

NEW YORK CITY-The US lodging industry continues to be buffeted by headwinds from a listless domestic economy. While the economy has exhibited signs of stabilizing, with Gross Domestic Product (GDP) recently turning positive and dramatic job losses abating, American corporations and consumers continue to spend less and save more. In addition, high oil costs and renewed terrorism threats continue to impede a full recovery. As borrowers with maturing mortgage instruments face a very challenging refinancing environment during the next 12 to 36 months, defaults on hotel real estate debt are anticipated to rise dramatically. Recent extensions of delinquent hotel debt obligations are leading to widespread loan modifications, foreclosures, and liquidations of all types of lodging facilities across the nation. Furthermore, lenders are becoming more inclined to dispose of their mortgagee positions rather than bear the risks associated with the capital and management intensiveness of hotel assets.

During the 1990′s downturn, the advent of commercial mortgage-backed securities (CMBS), also known as securitized lending, was the vehicle which provided private investors with mortgage capital, and allowed the Resolution Trust Corp. (RTC), the US government-owned asset management company, to orderly transfer foreclosed commercial real estate from lenders back to owners and operators. Today, the billions of dollars tied up in defaulted CMBS securitized debt do not, as of yet, have an exit strategy which could enable a similar recovery.

The CB Richard Ellis (CBRE) Valuation & Advisory Services Hospitality & Gaming Group continuously monitors the major US hotel sale transaction market. The CBRE 2009 Major US Hotel Sales Survey includes 36 single asset sale transactions over $10 million each that are not part of a portfolio allocation. These transactions totaled $2.3 billion, and include 11,700 hotel rooms with an average sale price per room of $193,000. By comparison, the CBRE 2008 Major US Hotel Sales survey included 77 single asset sale transactions totaling $3 billion in trades, and included 18,600 hotel rooms with an average sale price per room of $170,000. By further comparison, the CBRE 2007 Major US Hotel Sales survey included 112 single asset sale transactions totaling $8 billion in trades, and included 36,400 hotel rooms with an average sale price per room of $219,000.