Tag: 4bn

New York’s hotel crisis puts pressure on $4bn mortgage bond sector

New York’s hotel industry is in crisis, with four out of five properties underpinning commercial mortgage bonds now showing strain under the weight of coronavirus and investors worrying whether hoteliers will be able to make good on their loans.

The coronavirus pandemic has left business travel and tourism deeply depressed and ravaged the finances of hotels and resorts around the world. The effects have ricocheted into financial markets and hit the nearly $4bn of hotel mortgages in New York that are bundled into commercial mortgage-backed securities particularly hard. 

Analysts say the effects of the virus have compounded years of overbuilding and created a glut of vacant hotel rooms. The prospect of a coronavirus vaccine, following this week’s breakthrough by Pfizer and Germany’s BioNTech, offers a glimmer of hope. But it is unlikely to be enough to avert a bleak winter for hotel owners and the investors that lent them money.

Vijay Dandapani, chief executive of the Hotel Association of New York City, said that if half the city’s 640 hotels survive it will be a “great” outcome. Occupancy rates in September remained 20 per cent lower than for the same month in 2019, despite recovering from their worst point in April where occupancy was down more than 60 per cent year on year, according to data from STR. 

Mr Dandapani said the vaccine would have “zero impact” on the hotel industry for the rest of the year, with the possibility of some tourism-related business returning early in 2021.

Four out of five New York hotel loans show signs of stress

“But it’s fickle,” he said. “Realistically we aren’t going to see any improvement until the second quarter . . . The industry is really bleeding. It’s not just on life support, it’s comatose.”

According to figures from Trepp, a CMBS data company, 37.7 per cent of all New York hotels underpinning CMBS deals now sit on a watchlist designed to warn investors of impending trouble before a mortgage is transferred to debt collectors known as special servicers. A loan may be added to the watchlist for a number of reasons, such as if the borrower’s income has dropped or they have recently missed a payment on their mortgage.

A further 44.7 per cent of loans have been transferred to special servicers to either find a way to get borrowers paying their mortgage or to foreclose on the properties. Together, it means more than 80 per cent of the city’s hotels backing CMBS deals — equivalent to $3.1bn — are exhibiting signs of strain from coronavirus, more than the national average of 71 per cent. 

“It’s terrible. There is no demand right now,” said Manus Clancy, head of research at Trepp. “We’re going into a period of time when you would normally expect demand to be high. It’s the holiday season. People want to come to New York. They want to see the Thanksgiving parade and see the store fronts and go to Broadway. It’s now going to be a very dark time.”

The Hilton Times Square closed last month after its owner
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