Monthly Archive for May, 2009

Over 4,000 Hotels Will Default This Year Alone

Published
by
Steve Van
on May 15, 2009
in Uncategorized
. 21 Comments

Here’s the math…

- Current CMBS default rate is 2%.

- S & P estimates CMBS hotel delinquencies to be 8% by year end.

- Trepp said in May $2.3B in CMBS hotel loans were in special servicing.

- So four times as many loans will be delinquent by December.

- 4 X $2.3B = $10B.

- So assume the average hotel loan is $10M (lots of $5M loans many $20M and a few over $100M).

- $10B ÷ $10M = 1,000 hotels in CMBS default.

 

- Now CMBS is only 22% of commercial loans, banks have 43%.

- Assuming hotel bank loans are as delinquent as CMBS- (probably worse because many are construction loans) that means twice as many bank loans.

- So far we have 1,000 CMBS + 2,000 Bank hotel loans = 3,000.

 

- The other Commercial Lenders- pension funds, life companies, credit unions- that make up the other 35% of hotel loans probably have at least as many as CMBS with 22%; so say 1,000 hotel loans here.

 

1,000 from CMBS + 2,000 from banks + 1,000 from others = 4,000 hotel loans delinquent by year end – Happy Holidays!

 

Comments please. I don’t even have an MBA (but I didn’t make any hotel loans either), but it would be good for us all to get an estimate of the magnitude of the earthquake.

 

Poem best describes current CMBS hotel loan market

Published
by
Steve Van
on May 13, 2009
in Uncategorized
. 6 Comments

I have had so many requests for the poem I read at Meet the Money last week that I am posting it here in full.  It sums up the view of the wisest conference speakers on the current state of the CMBS loan market.  I can just see that huge stone head toppled in the sand and sense how the mighty have fallen. 

 

Ozymandius
by: Percy Bysshe Shelley (1814)

 

I met a traveler from an antique land
Who said: “Two vast and trunkless legs of stone
Stand in the desert… Near them, on the sand,
Half sunk a shattered visage lies, whose frown,
And wrinkled lip, and sneer of cold command,
Tell that its sculptor well those passions read
Which yet survive, stamped on these lifeless things,
The hand that mocked them and the heart that fed;
And on the pedestal these words appear:
My name is Ozymandius, King of Kings,
Look on my works, ye Mighty, and despair!
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away.

 

 

 

 

 

Full recovery in 2015!! (Maybe)

Published
by
Steve Van
on May 13, 2009
in Uncategorized
. 1 Comment

If 2015 looks like a date from science fiction think again.  It’s OPTIMISTIC! It took 6 years to recover from 2001 and 1991 and those downturns began with supply DECREASING. Guess what?? Our recent downturn has supply INCREASING.  3.2 %.  Yuck!  So the most positive view is that we will get back to 2007 hotel market health in 2015 …but it could be 2017.

 

This comes from an illuminating presentation by Mark Woodworth of PKF Hospitality Consulting.  View the PowerPoint at http://www.pkfc.com/en/pkfhome/nism/presentations/PKFC_MTM_2009.pdf  

 

So what does this auger? Hotel values and loan coverages probably won’t get back to 2007 levels until your children are in college, you lose your hair, you add 20 more pounds or you give up and change industries.

 

 

Hotel Demons Revealed at Meet the Money in Los Angeles

Published
by
Steve Van
on May 12, 2009
in Uncategorized
. 2 Comments

Just a few frightening take-aways from Jim Butler’s Meet the Money in LA this week.

 

1) Most candid honest and valuable hotel conference in recent memory. People actually attended the sessions -instead of loitering at the bar (I didn’t see many people there) and hallways!  Reason- our industry is in dire trouble and everyone wants to hear the most up to date opinions of how to: A) survive the disaster; and B) how to take advantage of those who don’t survive the disaster.

 

2) How bad is it? The first panel with such battle hardened veterans as Jonathan Roth from Canyon Capital, Bernie Siegel from KSL Capital and Barry Olson from Archon/Goldman Sachs, (and these guys really know how to make money I assure you) was the most pessimistic I have ever heard.

“Bridging (repairing) the capital stack is somewhat impossible today…all equity invested in 2006, 2007 and 2008…is essentially GONE.”

“CMBS is dead. Infrastructure for originations is gone. There is no other outcome than a massive reset of capital values.”

“Pool of capital for hospitality is radically reduced.”

“Wave of defaults has to happen until the decent yields on

      senior debt will return.”

 

And the best quote of the conference- “I have to wear a helmet to investment committees these days.”

 

3) And here is one so shocking that it deserves separate treatment- “The estimate of CMBS hotel defaults going from 2% to 8% (400% increase) is WAY UNDERSTATED (emphasis mine).  From discussions last week at ULI, it may 16% to 24%.  (No I did not write this one at the bar- I will share some of those later.)

New Source for Hotel Financing!

Published
by
Steve Van
on May 11, 2009
in Uncategorized
. 2 Comments

If you want to sell a hotel and are a special servicer try this one…most 06 and 07 borrowers who are not hiding from reality are realizing that they have no equity left in their hotel, won’t be putting in any more cash and just want to do hand back the keys and go on… In such ever more common circumstances the special servicer should try to get the borrower to agree to a receivership and then sell the hotel out of the receivership. This allows the new purchaser to assume the loan and thus pay more for the hotel- all good for the servicer whose job is to maximize net present value to the trust. (If the servicer forecloses under current law the loan is extinguished.)

 

Getting the borrower to agree to a receivership might be easier than expected. The servicer can agree to advance payroll or even let the borrower continue to manage the hotel and collect fees. In most states this process will be much less expensive and time consuming than foreclosure. The servicer should weight the benefits of selling from receivership and preserving the loan and will probably be able to justify throwing the borrower some bone as an incentive to cooperate.

 

Another possible lead in …”Get your money for nothing and your chicks for free”….(is that even close to the song?)