Year-end 2020 hotel valuations are likely to have shown value drops of anywhere between 10% and 20%, and clearly those assets with the larger falls will be most vulnerable. These distressed situations are most likely to surface in Q2/Q3 2021 when sellers and banks will be under more pressure to ‘meet the market.’ Meanwhile banks will no doubt be identifying which of their problem non-performing loans need to be placed in the market sooner rather than later.
Contributed by Tom Oakden, managing director, Hilltop Hospitality Advisors, London
Acore Capital has recently raised an institution backed fund of US$1 billion to lend to hotel owners in North America to help them come through the crisis and grow from it. They said, “We like the rebound characteristics of hotels and we want to provide you with the recovery capital to get through to the other side.”
This is what many capital sources are thinking at the moment on both sides of the pond, although it’s fair to say that the UK is probably three to six months behind the U.S. in terms of recovery capital needs. This is due to a combination of government support and bank forbearance, which looks like it will extend well into Q2 2021 as it continues to provide life support to owners and operators.
Turning back to the U.S. hotel sector, the market is dominated by CMBS debt which translates to accelerated foreclosures and forced asset sales on defaulting and delinquent loans through special servicers. This compares to more traditional debt structures in UK and Europe where defaulting loans take longer to be cured or assets sold.
The size of the U.S. hotel CMBS market was US$86 billion at March 2020 and by December 2020 26% of CMBS hotel loans were in the hands of special servicers. In dollar terms this equates to around US$22.4 billion. This is why funds providing recovery capital and those targeting distressed acquisitions have their sights firmly set on the U.S. hotel sector, but is only a matter of time before the same scenario plays out around the world, to a lesser or greater degree.