The American Hotel and Lodging Association (AHLA) is sounding the alarm over an anticipated wave of hotel foreclosures, citing recent data indicating that only 20% of U.S. hotels have received any debt relief from Wall Street CMBS (commercial mortgage-backed securities) lenders.
"Right now, many hotels are struggling to service their debt and keep their lights on, especially those with CMBS loans," said AHLA president and CEO Chip Rogers in a statement. "Without action to shore up commercial debt, especially CMBS loans, the hotel industry will experience mass foreclosures and permanent job losses which will snowball into a larger commercial real estate crisis impacting other segments of the economy."
The AHLA also pointed to a recent report from Trepp, which predicts that the CMBS delinquency rate in the U.S. will surpass 10% for June, up from 7.15% in May and 2.29% in April.
Trepp also reports that the largest CMBS delinquency balances are in New York-Newark ($6.8 billion), Chicago-Naperville-Elgin ($2.2 billion) and Minneapolis-St. Paul-Bloomington ($1.8 billion). Across all three of these MSAs, lodging was the most heavily impacted sector, accounting for 39.2%, 50.2% and 48.6% of delinquencies in each market, respectively.
In response to rising delinquency rates, a bipartisan group of congressional leaders is calling on the Department of the Treasury and the Federal Reserve to provide "economic support to bridge the temporary liquidity deficiencies facing commercial real estate borrowers."
"Due to COVID-19, we are witnessing the CMBS market accelerate towards delinquency at a much quicker rate than the 2008 financial crisis," the group said in a letter sent to Treasury secretary Steven Mnuchin and Federal Reserve chair Jerome Powell on June 22.
"Some of the hardest-hit industries, such as lodging and retail, who already have delinquency rates of 19.13% and 10.14% respectively, drive these climbing CMBS delinquency rates. Without a long-term relief plan, CMBS borrowers could face a historic wave of foreclosures starting this fall."
The AHLA, along with the Asian American Hotel Association, Latino Hotel Association and the National Association of Black Hotel Owners and Developers also sent a letter to Mnuchin and Powell last week, pushing for updates to the Federal Reserve's recently launched Main Street Lending Program, which is designed to help buoy small and medium-sized businesses.
The hotel associations are asking Treasury and the Fed to loosen creditworthiness evaluation requirements in order to allow more hotels to access the program as well as establish a dedicated, hotel-specific commercial mortgage-backed securities market relief fund as part of the Main Street Lending Facility.