tightened to the level recorded in 2019 ( i . e ., just under 4.00 %). During Q1 2024 the spread was 2.44 % or about 50 basis points below the series long run average . The trend implies further tightening . |
9
8
7
|
Figure 2 : Hotel Mortgage Interest Rates and Spreads to 10-Year Treasuries , Pre and Post Pandemic
8.52
|
7.78 |
HOTEL MORTGAGE RATE SPREADS A critical link exists between mortgage interest rates , sales volume and property prices . As mortgage rates increase , sales volume declines putting downward pressure on prices . Figure 2 shows that within a few years hotel mortgage interest rates doubled , which had a meaningful negative impact on hotel transactions and property prices . Since 2019 , 10-year Treasury rates grew proportionally with hotel mortgage rates leaving the spread to Treasuries close to the Q4 2019 level , as shown in the figure . Despite downward pressures on hotel property prices from rising mortgage rates , the increase in these rates moderated and the relative risk of hotel lending indicated by the spread returned to within approximately 100 basis points to pre-pandemic levels .
Hotel mortgage interest rate spreads to risk assets rates have come well off their highs in 2021 and 2022 . As shown in Figure 3 , the spread of hotel mortgage rates to rates on 15-year residential mortgages moved down from 350 basis points to 124 basis points in Q1 2024 . Prior to the pandemic , the spread was hovering around 100 basis points . Similarly , the spread between hotel mortgage
Percent
Percent
6
5
4
3
2
1
4.73
2.39
3.97
rates and other CRE mortgage rates at 104 basis points is within 70 basis points of pre-pandemic spreads .
KEY TAKEAWAYS
• The spread between hotel and commercial real estate ( x hotels ) cap rates expanded to 4.44 % in 2020 then compressed to 2.44 % by Q1 2024 . The long-run average
5.80
5.15
4.08
Hotel Mortgage Rate
0
Year 2019 2020 2021 2022 2023 2024
4.00
3.50
3.00
2.50
2.00
1.50 1.27
5.40
3.45
Spread : Hotel Mortgage Rate / 10-Yr T
3.50
Series Average = 6.23 %
since 2001 equals 2.98 % indicating a normalization of hotel investment risk .
• Hotel mortgage interest rates nearly doubled from 2019 to 2023 and remain above the series average . Yet the spread between hotel and commercial real estate mortgage rates in Q1 2024 at 1.04 % is trending close to the . 35 % in Q1 1019 .
• Similarly , the spread
4.69
3.63
Series Average = 3.85 %
Figure 3 : Hotel Mortgage Interest Rates Spreads to Selected Capital Market Rates , Pre and Post Pandemic
1.69 2.14
1.00 |
0.80 |
Spread : Hotel Mortgage / 15-Yr
Res Mortgage Rate
|
Series Average = 2.20 % |
1.04 |
0.50 |
0.35 |
Spread Hotel Mortgage / CRE |
Series Average = 1.51 % |
|
|
Mortgage Rate |
|
0.00 |
|
|
|
2019 |
2020 |
2021 |
Year |
2022 |
2023 |
2024 |
2.65
3.58
1.24 between hotel mortgage rates and 15-year residential mortgage rates declined from a peak of 3.50 % in Q1 2021 to 1.24 % in Q1 2024 . The series low was . 80 % in Q3 2021 .
• Current capital market spreads indicate that the risk premiums associated with hotel property investment have returned to within a normal range .
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