and the end is 26 months from now. The Fed and most lenders are driving Commercial Real Estate into a box canyon… you know the one with three tall sides and no way out…used in the old west to drive game into and …kill…easily. And hotel loans are the lead cows. Sounds like the perfect scenario for our dear friends the vulture funds. Our canyon has three sides:

        the massive Maturity Wall looming in 2012

        the towering $850 Billion Equity Gap

        the Race between Libor and RevPar which RevPar will loose

The Maturity Wall is the worst – from now until 2012 there are $170 Billion in just CMBS maturities. Those maturities will hit at the same time hundreds of Billions of corporate bond debt is coming due. Hordes of real estate and corporate borrowers will be gathered around a limited watering hole of fresh capital and there won’t be enough to go around.

And our industry’ extend and pretend is driving all the already weakened loans towards that end.

The Equity Gap is the shortfall between the $2.8 Trillion (you know it’s sort of fun to type $Trillion) in commercial real estate loans originated between ‘05 and ‘08 which if refinanced today would be worth $2.0 Trillion. So $850 Billion will need to come from write downs and equity. Hotel loans are about 10% of this say $280 Billion with say an $85 Billion shortfall. Pundits estimate there is about $12 Billion fresh hotel equity raised to help with the butchering.  So that leaves about $73 Billion in loan losses. For comparison the TOTAL market value of all hotel REITS and hotel public companies is $33 Billion. Did that sink in?  Yes the loss is twice as much as the total value of all hotel REITS and public companies. This will stink.

The Race between LIBOR and RevPar will start to sink most floating loans as soon as the economy starts to recover. When each of the past recoveries has taken hold Libor increases around 300-400 basis points in twelve months. So today’s fairy land of 2% hotel loans (175 over Libor at 0.24 today) will evaporate and payment rates will increase by 150-300%. Some of these loans won’t even make it to the end of the canyon.

So what do we do? Collectively we as a nation could create another RTC (and for those originators I have talked to who didn’t know what the RTC was please call me). Likelihood of that happening in today’s put it off  til the next election political environment is shall we say slim. Smart money will wait at the end of the canyon and have a historic feast of cheap hotel asset buys. Most of us will just keep our heads down and try to do the best we can as owners holding on to our hotels or as lenders working out loans. But all of us taxpayers as the lender of last resort will in the end pick up the bill. And a big bill it will be.