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CMBS: Hotels have one foot in the ratings grave
admin | April 3, 2020
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The most maudlin and defeated analysts out there right now might be those that cover the lodging sector. Hotel performance metrics – which are almost perfectly inversely correlated to the unemployment rate – have fallen off the metaphorical cliff, after a record 10 years of growth. That steady, positive expansion led to several years of hefty increases to lodging properties in both conduit CMBS and single asset, single borrower deals. Reflecting on fundamentals, S&P analysts noted that hotels were the worst performer of all major property types during the previous recession, with cumulative default rates of 24.8% and an average loss severity of 44%. After many paragraphs of somber discussion of net cash flow weakness and LTV thresholds the analysts remark that based on the overwhelming uncertainty surrounding the duration of the shutdown that S&P is not taking specific ratings actions yet. But the overwhelming tone is “brace for impact.” The S&P report is here. Source: S&P Global Ratings, APS
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