U.S. hotel industry faces foreclosure wave

Va. spared for now, but could change in winter

Published August 18, 2020 by Sydney Lake

The U.S. hotel industry is facing an historic wave of foreclosures due to the pandemic, according to findings released Tuesday from the American Hotel & Lodging Association (AHLA), but Virginia might be an exception — for now.

“We are not seeing much in the way of foreclosures or defaults as of yet,” says Virginia Restaurant, Lodging & Travel Association President Eric Terry. “Most owners whose properties were financed by local or regional lenders via conventional or [Small Business Administration] loans were able to obtain some degree of forbearance or deferral at the outset of the pandemic. This, combined with [Paycheck Protection Program] loans, has allowed most to make it through the spring and into the stronger, relatively speaking, summer months.”

But since the pandemic began, the hotel industry in the U.S. has continued to be hard hit due to traveling restrictions, social distancing requirements and other challenges. Data compiled by analytics company Trepp LLC shows that the percentage of hotel loans that are 30 or more days delinquent is 23.4% as of July — the highest percentage on record. At the end of 2019, the percentage of hotel loans that were 30 or more days delinquent was only 1.3%.

About $20.6 billion in hotel loans were 30 or more days delinquent as of July, compared to $1.15 billion as of December 2019, making it the most heavily hit sector of the commercial mortgage-backed securities (CMBS) market. And although Virginia hasn’t been hit with mounting foreclosures, Terry expects this could change in the near future.

“Absent additional federal relief or stimulus and/or a resolution to the pandemic, we expect conditions to worsen as we move into the winter months and expect foreclosures or defaults to accelerate dramatically towards the end of 2020 and into the first quarter of 2021,” Terry says. “Where there is some foreclosure or default activity at present is in properties that were financed by CMBS or securitized financings. These lenders, loan servicers representing the underlying bond holders, are restricted in their ability to make significant modifications to their loans and, thus, more owners of these properties are defaulting and surrendering their properties. All that being said, we are seeing better occupancies [at] 48.4% last month, mostly led by Hampton Roads.”

But as a result of national trends, nearly 4,000 hotel industry leaders sent a letter on Aug. 18 to the U.S. Congress asking for immediate action to be taken to help hotels avoid foreclosures and job loss. 

“With record low travel demand, thousands of hotels can’t afford to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently,” AHLA President and CEO Chip Rogers said in a statement. “Tens of thousands of hotel employees will lose their jobs and small business industries that depend on these hotels to drive local tourism and economic activity will likely face a similar fate.”

The letter encourages Congress to enact the HOPE Act, bipartisan legislation introduced by U.S. Reps. Van Taylor (R-Texas), Al Lawson (D-Fla.), and Andy Barr (R-Ky.). The HOPE Act would provide assistance to small businesses that operate in struggling commercial real estate markets by providing commercial property owners temporary liquidity to keep their doors open in exchange for a preferred equity interest in the property.

“The hotel industry strongly supports The HOPE Act to give struggling small business hotels an opportunity to keep their doors open and avoid foreclosure,” Rogers said in a statement. “We urge the immediate passage of this legislation so America’s tourism industry can survive and recover when the public health crisis subsides.”

The HOPE Act would especially help minority-owned hotels struggling to stay afloat, lodging associations said.

“Our hotel industry has been devastated by the effects of COVID-19,” Latino Hotel Association President and CEO Lynette Montoya said in a statement. “The financial assistance through the HOPE Preferred Equity lending facility would provide relief and could help stimulate the economic situation in communities throughout the United States.”

“The HOPE Act is essential in helping provide hotel owners with liquidity when we need it most and will serve to help keep businesses open, thus saving local jobs,” Andy Ingraham, president and CEO of the National Association of Black Hotel Owners, Operators and Developers, said in a statement.

Subscribe to Virginia Business.

Get our daily e-newsletter.