According to an article published in the Bloomberg Law Journal last week, we are in store for a massive meltdown in the world of hospitality.
Just as it appears that travel is returning to normal, hotels are about to get slammed in the side of the head again. But this time its from their lenders.
As of December, close to $4.1 billion out of roughly $93 billion in outstanding lodging loans are delinquent, according to data from CMBS analytics firm Trepp Inc. It currently projects about $35 billion worth of those loans to mature this year.
According to the report, there are currently 155 loans secured by hotels that are in financial distress in the US. This number is expected to balloon as loans become due.
Those who are franchisees of major flags also have covenants for capital expenditures to keep the hotels looking fresh and meeting brand standards. These are hard requirements from Hilton, Marriott, and IHG. Many of the hotel operators were allowed to defer those capital projects during the pandemic because clearly they were in financial distress with the large scale lockdowns that were crippling the industry. Now those improvements are required to happen at a time when the cost of financing those capital improvements has more than doubled.
The hotel data company STR Global maintains industry statistics on hundreds of local markets. Recovery is underway when you compare 2022 and 2023 data with 2019. But averages are still below 2019 numbers in most cases. Parts of Europe experienced above 2019 occupancy for certain specific weeks, indicating strong leisure travel.
The real story is that despite the recovery, the Bloomberg law article is onto something. There will be a significant number distressed deals appearing in the market this year. If this is an area of interest, be prepared to jump in and perform your due diligence for the right assets.