The hotel real estate sector is beginning to see a recovery from the most dramatic and “mind altering” decline ever experienced in the lodging industry. Occupancy gains, driven by increased leisure demand and the beginnings of business demand returns, are the fueling the recovery.
However both segments are looking for the best price and now have different views on how to travel and what they’re willing to pay. With many hotels operating in the 60-65% occupancy range there is no evidence of the significant pricing power needed to drive an increase in the Average Daily Rate (ADR)—the key to driving a corresponding increase in Net Operating Income (NOI).
Despite this, owners still have the pressure and added expense of maintaining, and in many cases improving, on brand product and service requirements. Some forecasters are predicting that Revenue Per Available Room (RevPAR) losses incurred during the recession will be erased by 2013, and that profitability will be restored to prior levels. However, many hotels will continue to experience debt/service shortfalls over that recovery period.
Still numerous other indicators point to a slow recovery which would be devastating to many distressed CMBS loans. Many borrowers have used all of their cash to keep funding debt/service requirements through the recession and have little ability to continue to do so waiting for values to simply reach the current outstanding debt several years out. As a result the recovery will ease the distressed situation on loans that are marginally in default and that have maturities that extend to 2015 or beyond. As it pertains to situations that are more severe and on loans that mature in the next 2 to 3 years we expect an increase in Distressed CMBS Loans.
For more information or assistance with a distressed CMBS loan please visit us at1stservicesolutions.com.