Loans secured by more than 1,500 hotels with a total outstanding balance of US$24.5 billion (US$1 = RM3.48) may be in danger of default, according to Realpoint LLC, a credit rating company that tracks commercial mortgage-backed securities. Some of the biggest loans, put on the company's watch list because of late payments, decreasing occupancies or cash flow, were made to luxury properties where rooms can cost more than US$850 a night.
"All segments are showing signs of distress but the luxury segment carries much higher loan balances and is more clearly affected," Frank Innaurato, managing director of CMBS analytical services at Horsham, Pennsylvania-based Realpoint, said in an interview.
Lodging owners are struggling after adding rooms and properties at the peak of the CMBS market from 2004 to 2007, when US$83.4 billion in hotel-backed securities was issued. Occupancy among chains with the costliest rooms fell to 60 per cent in the first half from 70 per cent a year earlier, according to Smith Travel Research. The decline was the industry's largest for that period.
"Luxury hotels have been aggressively financed during the peak CMBS issuance years," David Loeb, an analyst at Robert W. Baird & Co, said in a phone interview. "That's why luxury hotel loans crowd these watch lists."
A US$90 million loan secured by the Four Seasons San Francisco, a 277-room, five-star property, is 90 days delinquent and foreclosure proceedings have begun, according to Realpoint. A notice of default has been filed, according to data.
The borrower was Millennium Partners LLC, a real estate firm founded in 1990 by Christopher Jeffries. The company controls 1,860 residential units, more than 2,000 hotel rooms and 1 million sq ft of office space, Realpoint said.
The Dream Hotel, a 220-room hotel on West 55th Street in New York City that features 300-thread count Egyptian bed linens and iPods, is collateral for a US$100 million loan taken by Surrey Hotel Associates LLC that's at risk of default, Realpoint said.
The borrower is trying to restructure the debt and defer payments, said Riyaz Akhtar, vice president at Surrey.
"What's happening to us now is happening, and will continue to happen, to many hotel properties given the current market," Akhtar said.
The US hotel loan-delinquency rate may climb to 8.2 per cent by year-end, Morgan Stanley analysts led by Andy Day said in a June 23 report. That will match the peak from the last recession in 2001.
Upscale hotels are suffering from "a heightened focus on prudent corporate travel expenditures," as well as the pullback in vacation travel, Day said.
The number of luxury-brand rooms in the US as of the end of July rose 9.1 per cent from a year earlier to 100,000, Loeb said.
By Bloomberg
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