'Tsunami' of hotel closures is coming, experts warn

By Hugo Martín, Los Angeles Times on

Published in Business News

Ashford Hospitality recently turned over the keys to its newly purchased Embassy Suites in Midtown Manhattan to its lender after the real estate investment trust fell behind on debt payments, according to CNBC.

The owner of Chicago's Palmer House Hilton hotel was sued by Wells Fargo last month, accused of defaulting on a $333.2-million loan. The lawsuit asks the court to appoint a receiver for hotel operations, according to the Chicago Sun-Times.

Nationwide, it's not clear how many hotels are behind on their loan payments. But figures are available on hotel loans that have been bundled and sold to investors as commercial mortgage-backed securities. Payments on 16.77% of those loans are more than 30 days late, according to Fitch Ratings - up dramatically from less than 2% before the industry began feeling the pandemic's financial effects.

Once a hotel is more than 30 days late on making a mortgage payment, the lender can file a notice of default on the loan and increase the interest rate by 5% until the payments are brought current, according to hospitality industry experts. If after 90 days, the lender has not brought the loan current, the lender can file a notice of sale - a sale that can take place 21 days after the 90 days expire, experts say.

"The clock is ticking on loans for hotels and restaurants, and there is going to be a sharp uptick in delinquencies," said Lloyd Greif, founder and chief executive of the investment banking firm Greif & Co.

In Southern California, nearly 60 hotels in Los Angeles and Orange counties are more than 30 days delinquent on their loans, including the Embassy Suites by Hilton in Palmdale, according to the data firm Trepp.


An executive with the management company that operates the Embassy Suites in Palmdale and 52 other hotels said some of the hotels in its portfolio are struggling to stay in business while others are overcoming the pandemic, with occupancy rates as high as 80%.

"We do see some promise and hope," said Ernie Catanzaro, executive vice president of Blue Sky Hospitality Solutions.

More hotels have not yet closed permanently because they were able to take advantage of the funding provided by the federal Paycheck Protection Program or because banks have been forgiving of loan delinquencies for the last few months, said Wise, the commercial real estate expert.

But he expects that such clemency won't last long.


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