What Happens When a Massive Wave of Hotels Default?
Photo Credit: Some hotels like Chicago's Palmer House (pictured) are facing foreclosure, but real estate attorneys see alternative options for struggling owners. Flickr / ThreeIfByBike
Skift Take
The hotel industry is struggling under months of cratered occupancy and revenue. But there may be a way to avoid foreclosure with the bank — as long as your hotel was doing fine before the pandemic.
An enormously large number of U.S. hotel owners are at risk of defaulting on their mortgages, but experts say the banks holding those loans aren’t likely to usher in an era of mass hotel foreclosures across the country.
Hotels — at a nearly 24 percent delinquency rate at the end of the summer — are the biggest source of delinquent loans for commercial mortgage-backed securities, a group of mortgages pooled as one that hotel developers use to build new projects, reports data firm Trepp. Just over 1 percent of hotel loans were in default at the end of 2019.
More than $22 billion in hotel loans are in special servicing, a type of commercial mortgage-backed purgatory between default and foreclosure, according to JLL.
Not every hotel owner in the U.S. relied on commercial loans to build their property, but 50 percent of U.S. hotel owners claim they are in danger of foreclosure by their lenders due to the pandemic, according to an American Hotel & Lodging Association repor
