Commercial mortgage-backed securities (CMBS) used to float hotel purchases from as far back as 2007 are coming due, and Prism Hotels & Resorts CEO Steve Van says the amount of hotel foreclosures seen now will not compare to what’s on the horizon. The delinquency rate for hotel loans stands at 14.12 % today, but Van believes it will rise as high as 50% before the dust settles. Van remarks the ‘extend-and-pretend’ treatment of CMBS has its consequences, and that there is no longer any room to maneuver on delaying the repayment of accrued debt in the industry. For more on this continue reading the following article from National Real Estate Investor.
Steve Van sees trouble ahead with foreclosures in the hotel sector.
Steve Van hates being the pessimist, but he can’t help it. The CEO of Prism Hotels & Resorts says comparing the last two years of hotel distress to what’s coming is like comparing “a car wreck and a train wreck.”
He doesn’t see any other way to avoid the oncoming flood of CMBS maturities that originated in 2007, at the absolute pinnacle of the lodging industry, as well as a wave of costly property improvement plans now being mandated by franchise companies emboldened by strong operating results.
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Van knows a thing or two about hotel distress. The Dallas-based hotel management company he founded in 1983 has handled more than 150 receivership assignments since 2000. It currently is acting as receiver at approximately 30 properties and Van believes many more are coming.
“How long can you hold your breath?” he asks of the extend-and-pretend strategy employed by many lenders and owners the past two years. “At some point you start getting brain damage.”
The delinquency rate on securitized hotel loans was at 14.12% through October, highest among all commercial real estate classes, according to Trepp, a New York-based analytics firm that tracks the commercial mortgage-backed securities (CMBS) industry. Van believes the number could reach 50% next year with all the loans coming due that originated in 2007 and earlier that were extended.
He’s not alone. At the Bloomberg Commercial Real Estate Summit in New York this month, hotel developer Robert Sonnenblick described the wave of CMBS loans coming due and the lack of replacement capital available as a “close-to-catastrophic problem.”
Van believes Prism will add approximately 25 more receivership assignments in the first quarter alone next year, tipping the scale of his portfolio of 55 properties to more short-term than long-term assignments.
The 33-year industry veteran with a law degree from Texas and author of the Hotel Default Blog recently discussed the oncoming train wreck, as well as his optimistic view of lodging fundamentals and the future of the industry.
This article was republished with permission from National Real Estate Investor.