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CMBS Delinquencies | Office Real Estate | Lodging Real Estate | CMBS Loans | Hotels | Commercial Real Estate Finance | CMBS News

Checking in on the Health of Hotels: Occupancy, Appraisals, Delinquencies

December 14th, 2021 | 7 min. read

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During the height of the COVID-19 crisis, lodging was one of the hardest-hit sectors. Since then, tourism and business travel have been on the road to recovery and the lodging sector has returned to good health. 

According to Trepp data, roughly 3,067 CMBS loans totaling over $84.82 billion in outstanding balance are backed by hotel properties located across the U.S. The lodging sector is the third-largest property type by outstanding balance, accounting for over 15% of the outstanding mortgage debt in the CMBS universe. Of the total lodging CMBS debt, roughly 40% is allocated in five states. Meaning California, followed by Florida, Nevada, Texas, and lastly, Hawaii, hold a combined total of $33.16 billion in CMBS lodging loans. Furthermore, full-service seems to be the most popular property subtype with about $44 billion allocated to this section. Following behind is limited service at $16.61 billion, and extended stay at $6.18 billion.

The map below outlines a state-level analysis of loan balance allocation.

Trepp’s delinquency rate for loans backed by lodging properties reached an all-time high of 24.3% in June 2020, which was a 21.89% increase from the same month a year before. As the economy recovered from the COVID-19 crisis and travel picked up again, lodging performance improved and the delinquency rate slowly dipped back down. The delinquency rate for lodging loans overall average for the past quarter months is 12.15% and more recently, clocked in at 9.40% for November.

All subtypes faced turmoil, but the hardest hit was the limited-service sector,  for which the delinquency rate peaked at 26.05% in July 2020. All sectors have since shown signs of recovery, with extended stay still reporting the lowest delinquency at 7.52% for the month.

Another sign of health in the sector is the rising occupancy levels. Hotel occupancy levels fluctuate constantly depending on room demand and time of year, lodging loans usually report lower average occupancies than other major property types. The overall average occupancy for lodging properties hovered within the 52.06-55.28% range for the past quarter.

A more in-depth look by subtype shows that the subtype that reported the highest occupancy for the month of November is extended-stay hotels at 69.88%. While full-service hotels are providing the lowest figure at 49.85%.

 

Trepp has tracked the most recent appraisal amount of all lodging loans per the number of units/rooms a property has available. This figure gives insight into what direction valuations are headed for a particular property type. Ultimately the average value of lodging loan appraisals in terms of the average number of rooms has been stable, meaning appraisal values have not significantly fluctuated from quarter to quarter.

Overall, the loading sector is seemingly in good health. In terms of performance, it seems as though the extended-stay property subtype was least affected by the brunt of COVID-19 shutdowns. Though extended-stay hotels still faced turmoil, they reported the lowest delinquencies and highest occupancies all through 2021 and the 2020 pandemic. One possible explanation is the flexible-living boom, workers and employers became more comfortable with remote flexibility allowing business to be done from anywhere. As the demand for flexibility in how the new generation of employees live, work, and travel increases it seems as though extended stay hotels have become a viable temporary solution.

Questions or comments? Contact Trepp at info@trepp.com or 212-754-1010

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The information provided is based on information generally available to the public from sources believed to be reliable.