REPORT FROM THE U.S.—There’s a big bill coming due for the hotel sector in 2012.
Billions of dollars of debt (comprised of commercial, mortgage-backed securities, credit facilities, bank and finance company loans and others) matures this year, much of it written during frothier days when underwriting terms were much less stringent than today.
In CMBS, for one, there is US$9.1 billion of hotel CMBS debt maturing in 2012; much of it originated in 2007, according to Trepp LLC, a company that tracks the CMBS market. It’s not clear how much balance sheet debt will mature in 2012, though Mathew Comfort, executive VP of global real-estate services firm Jones Lang LaSalle, puts that number at roughly twice the size of the CMBS market.
Bob Sonnenblick, principal of real-estate development firm Sonnenblick Development LLC, said all the debt coming due in 2012, particularly the CMBS debt, could prove a distraction to the industry as executives spend more time figuring out ways to refinance and less time focused on their own operations.
“It takes your eyes off the ball,” he said.
Sonnenblick said “there is no way” the lenders in the market will be able to refinance all the CMBS coming due.
“At best you will see a third (of maturing CMBS) refinanced,” he said.
Still, with the debt shadow looming over the industry, hotel companies are scrambling to refinance and restructure. For example, Ashford Hospitality Trust in December restructured its US$203.4-million securitized mortgage loan that was to mature in December.
Ashford also is working to refinance future maturities, too. The Dallas-based real-estate investment trust has US$167.2 million of debt coming due this year; the REIT is in the early stages of restructuring or refinancing the debt.
“We’ve tried to keep a balanced maturity schedule,” Ashford president Doug Kessler said.
Joe Epstein, president and founder of First American Realty Associates, a Fairfield, New Jersey-based mortgage lending source for the hotel industry, said debt restructuring in 2012 will be done on a “deal-by-deal, case-by-case basis.”
“The type of lender and the reasonableness of the borrower's request normally determines the outcome,” he said via email.
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The CMBS market saw plenty of fits and starts during 2011, said Jon Winick, president of Chicago-based Clark Street Capital Management LLC, a full-service bank advisory, disposition and asset management firm.
“I think the real-estate market has been very much distracted by CMBS,” he said. “CMBS has been very erratic. It’s in, it’s out. It’s back, it’s not back.”
The stop-and-go nature of CMBS, however, might come to an end in 2012, according to Huxley Somerville, group managing director of Fitch Ratings’ U.S. CMBS group.
During a webinar last month, Somerville said it appears the CMBS market is stabilizing; Fitch noted a slight month-over-month increase in hotel CMBS late pays for November. The delinquency rate for the hotel sector edged up to 12.66% in November from 12.54% during August.
“It, along with multifamily (sector CMBS), is expected to perform the best” in 2012, Somerville said of hotel CMBS.
The biggest threat to AAA-rated CMBS in 2012, Somerville said, would be a loss of liquidity in the market lasting six to nine months. Such an event inevitably would lead to an increased rate of defaults and a decline in property values.
Compounding the issue for hotel companies is the general lack of financing availability in the industry for the better part of the last 18 months.
Kessler said Ashford’s mortgage loan restructuring was made all the more difficult by the inactive CMBS market that ruled the latter part of 2011.
“It’s less available than it was six months ago,” Kessler said of debt.
JLL’s Comfort said debt available though underwriting terms have tightened. Helping the U.S. market are foreign lenders who have jumped into the debt market.
Globally, the European market still is a year or two behind where U.S. lending is, Comfort said.
“Europe is obviously in a state of emergency and is trying to figure out the best way to salvage their currencies and economies,” he said.
Winick said there should be some loosening of the credit markets in 2012, though.
“Hotel financing is going to get better,” Winick said. “It can only get better.”