Hotel Assets Aren’t Going Back to Lenders

While the hotel sector has been hit hard by the pandemic, lenders haven’t been in a rush to take back assets.

“The only asset sales that we’ve made for lenders to date have been deed in lieu, where the borrower has essentially handed back the keys and released it from their ownership,” Bob Webster, vice chairman and president, CBRE Hotels Institutional Group, said on CBRE’s “The Weekly Take” podcast. “But in a forced liquidity trade, which is a trade where the lender has to fight for the keys, that hasn’t happened yet.”

A primary reason there hasn’t been more fallout during the pandemic is that there are companies out there providing lifelines, in the form of capital infusions, to owners who are in a difficult liquidity position. “I’ve been very surprised at the magnitude of the liquidity in the space, looking to acquire hotels and looking to help with the liquidity distress in the ownership side of our business,” Webster says.

Looking forward, Webster says there is a tremendous amount of liquidity in the system for new debt and acquisitions. There might not be as much liquidity for refinancings, but he thinks the cost of that capital will continue to come down.

With so much capital out there, hotel values are holding up with prices within 20% of  2019 values, according to Webster. He says top-tier hotels that were doing well in 2019 and had little distress in the capital structure are durable assets. On the other hand, vulnerable hotels are burning a significant amount every month.

Just because values have held up doesn’t mean there aren’t real issues in the hotel space. D.J. Rama, President and CEO, Auro Hotels, says his full-service hotels are running 20 percent occupancies. The company is treating its full-service hotels like leisure hotels and giving a rate discount to attract customers.

“All our select-service hotels are running anywhere in the ranges of 55% to 60%,” Rama, who also participated in the podcast, says.

In Florida, where Auro has 21 locations and restrictions are being lifted, occupancies have crept into the low-80% range. Other markets aren’t performing as well.

“What you’re finding is that each market is behaving differently,” Rama says. “Our Minneapolis and Chicago assets are running in the 14% occupancy. Washington, D.C. is running 16%.”

Even though there is relative strength in some markets, there could still be some tough months ahead for the hotel sector.

“I’ve been making that case for a while, that January through April, maybe even May, might end up being the worst of the pandemic that we’ve seen,” says Chip Rogers, president and CEO, American Hotel & Lodging Association.

But brighter days could be around the corner. With vaccines being distributed, there is a light at the end of the tunnel.

“I do believe that people are looking to June, July as the time when the growth begins to reemerge,” Rogers says.