Owners of hotel assets might be headed for a reckoning . Operating performance continues to be outwardly healthy , but for how much longer ? And , as loan maturities and property improvements begin to stack up , owners are left having to decide what to do : sell or hold ? The latter could be costly and as the pain mounts , some prospective buyers are in the market eyeing discounted real estate that could be repurposed into other asset classes , including residential .
According to CoStar Risk Analytics , $ 23 billion of lodging CMBS loans scheduled to mature before this year remain outstanding . Some 79 % of those loans were extended to 2023 , and another 10 % were pushed to 2024 or later . Though CMBS loans represent only a small portion of the overall lending on hotel properties , they indicate the sizable amount of maturing debt looking to be refinanced or recapitalized .
Indeed , owners and investors are awaiting to see what the Federal Reserve and other central banks are cooking up to deal with inflation and decelerate the economy . In the U . S ., there was some propitious news that inflation has calmed , falling to 3 % in June compared with a year earlier , but still higher than the Fed ' s 2 % target . Expectations are that the central bank will resume its monetary tightening campaign after eschewing an interest rate increase in June , lifting the benchmark rate to a new target range of 5.25 % and 5.5 %.
For hotel owners , rising interest rates are an obstacle , especially those with floatingrate debt or those seeking to refinance a loan . In a piece by Dexter Wood , senior managing director of The Plasencia Group , earlier this year , he wrote that the “ cost of interest rate cap protection has exploded over the past year ,” with “ many borrowers who purchased caps before the Federal Reserve ’ s aggressive hiking of interest rates are now faced with expiring caps , and the cost to replace them has increased by five- or six-fold . Interest rate caps are now
A unit at Hermitage Studios outside Nashville . The apartment building was converted by Certes Partners from a former Rodeway Inn .
effectively a component of elevated overall borrowing costs that create even more financial pressure for hotel owners .”
The current environment has made it harder for owners to meet their obligations . As Wood pointed out , options afforded to owners include fresh owner equity , bridge loans , preferred equity investment or another form of gap financing — all of which are expensive short-term alternatives , but
could be the lifeline owners need until market conditions improve .
But can they wait ? We ' ve already seen cracks in the armor . In early June , Park Hotels & Resorts , a real estate investment trust that owns 45 properties in the U . S ., stopped making payments on a $ 725-million loan tied to the 1,921-room Hilton Union Square and 1,024-room Parc 55 , both in San Francisco , a troubled market
THERE IS GREATER RISK ASSOCIATED WITH A HOTEL INVESTMENT VERSUS TRADITIONAL MULTIFAMILY AS THERE IS MORE UNCERTAINTY AND VOLATILITY
– JARED WOLF , ACQUISITIONS AND DEVELOPMENT LEAD , CERTES PARTNERS
September 2023 hotelsmag . com 43