The COVID-19 pandemic forced hotels nationwide to shut down for weeks or operate at record-low occupancies with reduced staff. With revenues significantly reduced, many debt borrowers have requested debt forbearance or a payment deferral agreement from their lenders. A recent member survey from the American Hotel & Lodging Association (AHLA) found that while the vast majority of hotel owners with bank loans were able to adjust their payments (91 percent), only 20 percent of borrowers with Commercial Mortgage-Backed Securities (CMBS) loans were able to do the same. As a result, AHLA President Chip Rogers explained, thousands of hotel properties could face foreclosures.
“With a sharp decline in travel demand, nine times worse than September 11, and with lower room occupancy than during the Great Depression, our small business owners are struggling to survive,” Rogers said. “The human toll on our industry has been equally as devastating. Right now, many hotels are struggling to service their debt and keep their lights on, especially those with CMBS loans as they have been unable to obtain urgently-needed debt relief. Without action to shore up commercial debt, especially CMBS loans, the hotel industry will experience mass foreclosures and permanent job losses which will snowball into a larger commercial real estate crisis impacting other segments of the economy.”
Last week, more than 100 members of Congress submitted a bipartisan letter to the U.S. Department of the Treasury and the Federal Reserve urging the agencies to consider economic support for commercial real estate borrowers impacted by the pandemic. Legislators cited in the letter that the overall delinquency rate for CMBS loans reached 7.15 percent in May versus 2.29 percent in April, according to data from Trepp—nearing July 2012’s record high of 10.34 percent. In the lodging industry, the delinquency rate for CMBS loans approached 20 percent in May.
“Without a long-term relief plan in the face of an elongated crisis, CMBS borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and destroying jobs for Americans across the country,” the letter continued. “Further, surrounding property values and state and local tax revenues will plummet, worsening the recession, and removing critical revenue from local communities.”
Legislators called on the Federal Reserve to help businesses stay afloat through the current crisis. “Without an inclusive program, we may see large sectors of certain industries never recover. We believe an opportunity exists for responsible federal government investment in the commercial real estate market to provide a pathway to stabilize affected properties, the local jobs and businesses they enable, and the neighborhoods they serve. We request the Department of the Treasury and the Federal Reserve urgently consider targeted economic support to bridge the temporary liquidity deficiencies facing commercial real estate borrowers created by this unforeseen crisis.”
Last week, the American Hotel & Lodging Association (AHLA), the Asian American Hotel Association (AAHOA), the Latino Hotel Association (LHA), and the National Association of Black Hotel Owners and Developers (NABHOOD) called on the Treasury and Federal Reserve to adjust the creditworthiness evaluation requirements for the Main Street Lending Facility to ensure that hotels and other asset-based borrowers are able to keep people employed and survive the COVID-19 crisis.