Heartbreak Hotel Delinquencies Up Fivefold

They put up more boutique/ trendy hotels in NYC over the last 4 years than I could possibly name here.  I never could figure out who the hell they expected to occupy all of these rooms.  The Europeans certainly took advantage of the exchange rate in ’07 and ’08 but once the credit crisis hit, they stopped coming too, or at least stopped paying $700 a night for a 400 square foot room.

Anyway, it comes as no surprise that hotel owners nationwide are having a tough time, but the extent to which they are delinquent on loans, even compared to other types of commercial real estate, is staggering:

From the AP via Yahoo:

Hotel loans have begun falling into delinquency faster than any other kind of commercial real estate debt.

The rising defaults paint a grim picture for an industry with increasingly more rooms than guests, and more hotels still opening every day. It’s a problem that could get worse before it gets better, with demand expected to remain weak and ambitious new projects planned before the meltdown worsening the room glut.

The rise in delinquencies is sharp. Five times more hotel loans are behind on payments this year than in 2008, according to mortgage data firm Trepp LLC, which tracks those traded by investors. In October, 8.7 percent were distressed, compared with 1.5 percent last year.

That’s almost double the 4.8 percent rate for commercial property and the 4.5 percent rate for stores.

Bad and getting worse.

And as has been characteristic of this recession in other sectors, the bulk of the pain is on the high-end and in the most overheated segments like the luxury hotel market:

Most of the distressed debt is on new or newly renovated high-end resorts built from 2005 to 2007 on dreams of corporate meetings and cocktail hours. Luxury projects approved before the recession are still opening this year and in 2010 — including three Ritz-Carltons.

Serves ’em right.  All the stuff they were building and financing in ’07 was Bananas anyway.  As if we really needed 65 different boutique hotels with lounges serving $18 martinis in Manhattan alone.  There was no need for it then and there still isn’t.

The reason why this could be a prolonged problem is that the banks would sooner let the hotels continue to operate in delinquency rather than foreclose like they would on a house.  This is because running a hotel is a whole different ballgame and requires some actual knowledge and experience that most banks don’t have.  Talk about holding onto your losers.

Sources:

Hotel Owners Late on Payments (AP via Yahoo)

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  1. Weekend Reading | Leigh Drogen commented on Dec 05

    […] The bubble in hotels was so big and it still hasn’t collapsed, more pain to come (Reformed Broker) […]

  2. Weekend Reading | Leigh Drogen commented on Dec 05

    […] The bubble in hotels was so big and it still hasn’t collapsed, more pain to come (Reformed Broker) […]

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