More Hotel Distress Is Coming to the Market

There have been few distressed assets on the market aside from the hotel asset class, and even those deals have been sparse.

But signs are pointing to increased distressed hotel properties coming to market.

This week JLL’s loan sales and hotels and hospitality teams announced they were retained by a CMBS special servicer to market the sale of an $80 million, non-performing loan portfolio that includes six loans collateralized by full limited-service hotels totaling 1,022 keys across five states.

The portfolio includes two full-service and four limited-service hotels located in Lexington, Kentucky, Springfield, Virginia, King of Prussia, Pennsylvania, Indianapolis and Portage, Indiana, and West Coxsackie, New York.

“Given the pent-up demand and lack of hospitality product, we expect to see a strong turnout for this offering,” said JLL Managing Director Tom Hall.

Other hotel assets could also be hitting the market.

Citing unnamed sources, Bloomberg reports that Hospitality Investors Trust is negotiating with Brookfield, its largest investor, about a potential Chapter 11 filing as part of a pre-packaged bankruptcy. HIT owns about 100 hotels across the US.

While there haven’t been many distressed sales across CRE, hotels have been the one exception to that trend. Eight percent of hotel sales involved a distressed asset between March of 2020 and February of 2021, according to Real Capital Analytics. This percentage takes on greater significance as there were very few hotel transactions in that timeframe, with only $10.6 billion traded, RCA says. By comparison, $36.6 billion was sold in the prior 12-month period. 

Still, there have been some distressed sales.

Monarch Alternative Capital LP recently purchased the 400-room Crowne Plaza Orlando Universal Boulevard hotel in Orlando, Fla., through a Section 363 sales process as part of a Chapter 11 restructuring. The full-service, upscale hotel first opened in 2002 and generated consistent class flow before the pandemic.

In another example, as part of its Chapter 11 bankruptcy proceedings, Singapore-listed Eagle Hospitality Trust placed what is one of the largest portfolios of distressed US hospitality assets on the market via a stalking-horse auction that will be held on May 20th. 

If a better offer is not received in the auction, the stalking-horse bidder—Madison Phoenix LLC, an affiliate of Monarch Alternative Capital LP—will purchase the 15 properties for $470 million.