Archive

Miraculous Cure for Hotel Defaults

Published
by
Steve Van
on August 25, 2009
in Uncategorized
. 55 Comments

Always one to do my own market research and consistently willing to share my findings with others for the common good, I have discovered a cure for all the headaches and ills that Special Servicers, Asset Managers and other workout artists are facing from hotel defaults on a daily basis. It works better with friends and is more effective after sundown. Overuse may cause minor problems the next day.

My cure is a distillation handmade by Tito Beveridge of Austin, TX.

TITO’S HANDMADE VODKA

It is currently the top ranked Vodka in the world according to Wine Enthusiast reviews with a 95. Wimpy old Ketel One was second at 89 and the froggies Grey Goose third at 84. By unanimous decision, Tito’s has also received the Double Gold Medal at the World Spirits Competition. It is spreading world wide and I recently pushed it at Club 21 in New York and also the Hemmingway Bar at Ritz Paris. Those few of you still reading this will know I am quite serious and encourage you to go out tonight and try it yourself.

Tito's Handmade Vodka

Albert Einstein and Hotel Defaults

Published
by
Steve Van
on August 17, 2009
in Uncategorized
. 150 Comments

 

Here’s the hotel equivalent of E=MC².

Hotel value = NOI.

Hotel NOI has gone down 39.1%.

How much have hotel values gone down?

Answer: At least 39%, but actually could be worse since hotel values in another life (2007) were based on lower cap rates and bloated financing.

 

My personal thanks to Bruce Baltin of PKF in LA for his brilliant graph below- it shows how much worse NOI decline is than REVPAR.

 

 

big-adr-changes-fuel-noi-swings 

1991 NOI decline 9%

2002 NOI decline 18%

2009 NOI decline 39.1% which is an all time record.

The Sky is Really Falling

Published
by
Steve Van
on July 8, 2009
in Uncategorized
. 28 Comments

Today the last true defender of optimistic hotel forecasts threw in the towel and declared that year end 2009 hotel income will be 74% worse than forecasted in April.  Mark Lomanno, whom I greatly admire, is President of STR and has been the most sanguine of hotel forecasters.  In April, he predicted that revenue per available room would be down 9.8% for 2009.  Now he is predicting revenue will be down…17.1%.  For the full confession see http://www.hotelnewsnow.com/Articles.aspx?ArticleId=1487.

And for those of you hoping for some sort of recovery in 2010, Mr. “Optimist” Lomanno is predicting revenue down an additional 3.7%.

Like it or not, we won’t see any improvement in our business until at least 2011. The wise will keep looking for ways to cut more expenses (the bone?), steal more business from competitors and think twice before trying to predict current hotel values.

Telepresence- The End of Hotels As We Know Them

Published
by
Steve Van
on July 7, 2009
in Uncategorized
. 28 Comments

Well not really.  For decades (I built the first AT&T teleconference center in Dallas in 1980 – its now a flower shop) amateurs have been predicting the end of corporate travel and death of hotels because teleconferencing will replace face to face meetings.  (Don’t they realize people like to touch and smell one another like other primates to build the trust necessary to do business? …or mate but more on that segment of the hotel business later…much later.)

 

Starwood Hotels announced it will use Tata’s TelePresence worldwide and Marriott announced a deal with AT&T (there goes the flower shop) to have teleconference centers in their key hotels… if you can’t beat ‘em join ‘em.  For the anthropological reasons mentioned above, I don’t fear any effect on hotel defaults from this development…but once they get smell-a-vision and touch-a-conference watch out.  And that will happen in our lifetime.

Michael Jackson ups RevPAR

Published
by
Steve Van
on July 2, 2009
in Uncategorized
. 42 Comments

Since his passing, I have successfully avoided watching more than five seconds of news (the time it takes to switch channels, encounter another pop eulogy and then turn off the damn thing) about a genius musician and typically neurotic child star….but fate has placed Michael Jackson in the hotel business news.  Several hotels near Neverland (please never again) booked up to 100% occupancy within 20 minutes of the announcement that his body may be displayed there.  America get a life!!!  Whether this boon keeps the hotels out of default will be a topic later.  I know you cannot wait.

Default flood gates officially declared opened!

Published
by
Steve Van
on June 25, 2009
in Uncategorized
. 59 Comments

As of today, I am officially declaring the opening of the hotel default floodgates.  Get ready for 400 days and 400 nights of the greatest deluge in hotel loan history.  In the past two weeks, I have heard of almost 100 (92 to be exact) hotel loans going into servicing because of default.  This is not too far off my prediction that 4,000 hotel loans will default (an 8% default rate on the 50,000 US hotels) in the next year.  On a typical business day that would be 16 hotels going into default or 80 a week.  (About 250 business days in a year divided into 4,000 times five days).  And not to rely on just my personal experience, today’s Wall Street Journal says that Trepp LLC says that currently 5% of securitized hotel mortgages are in default.  Did that sink in?  ALREADY, JUNE 2009, 5% of securitized hotel mortgages are in default.

Nightmare on Park Avenue – Hotel Default Sentiment at CMSA Conference

Published
by
Steve Van
on June 12, 2009
in Uncategorized
. 36 Comments

The sentiment of CMBS Special Servicers handling hotels at this week’s CMSA conference in New York was grim as expected.  Several quotes sum up the gloom..

 

“The recession has not bottomed and commercial loan defaults peak on average two years after the recession is over and stay there for a long time (two years plus)”.

 

“Reaction to the appraisals we are getting is initial disbelief followed by resigned acceptance”.

 

“Loss severity for hotels this time will be more severe than before – to date there have been 420 liquidated hotel loans with an average loss severity of 30.8%”.

 

And one example of the carnage to come… “a hotel initially valued at $260M in 2007, with a loan of $150M and recently appraised at …$79M.  The mezz is gone and not much if any is left for the B piece.”

 

The conference hotel would not allow securities owners to stay in rooms above the 3rd floor.

Billions in Hotel Seller Financing Possible Soon

Published
by
Steve Van
on June 10, 2009
in Uncategorized
. 848 Comments

A highly important meeting for sales of hotels and value enhancement is occurring today in New York.  If agreement can be reached soon, CMBS Special Servicers will be able to sell foreclosed hotels with SELLER FINANCING- thus increasing dramatically the value they get for their REO and providing brokers and buyers with some needed relief.

 

Current REMIC Rules (don’t go to sleep on me now) and IRS regulations provide that once a Special Servicer forecloses on a hotel and takes the asset into REO the loan is extinguished.  The new rule change advocated by a group of influential Special Servicers would allow them to provide seller financing after foreclosure.  This would significantly increase the value of the hotels- SELLER FINANCING!!- and get the deal pipeline flowing.

 

Only snag is opposition from the A rated CMBS bond holders who want to get paid off when the hotel is foreclosed and use the proceeds elsewhere.  But the B piece owners would rather wait until the markets get better to increase the chance that their B piece will be worth something.  Today’s meeting is between Servicers and A bond holders – if they can come to agreement the powers in DC have said the rules will be changed. Brokers should pray for agreement! Stay tuned.

 

 

Bush…not the only failed W

Published
by
Steve Van
on June 8, 2009
in Uncategorized
. 21 Comments

Sunstone just announced that it is giving back the W San Diego to the special servicer.  They paid $96M for hotel in 2006 and took out a $65M mortgage.  Do I see a $31M loss here?  Most significantly, this is the start of a flood of high end end luxury hotels that will be given back this year and next.

 

 In addition to terrible markets, most luxury hotels are down 30% and morbidly obese loans- these hotels just cannot lean out their operations enough to make an operating profit much less make debt service.

 

And finally the stigma that once had owners, especially public REITS like Sunstone, pause before throwing in the keys is absolutely gone.  Every owner and REIT CEO I have spoken to has already decided to give back their hotel once it makes no sense to feed it.  And given market trends, this will soon be the norm.  For a good article see today’s Wall Street Journal… http://online.wsj.com/article/SB124441071403592235.html

Over 4,000 Hotels Will Default This Year Alone

Published
by
Steve Van
on May 15, 2009
in Uncategorized
. 217 Comments

Here’s the math…

- Current CMBS default rate is 2%.

- S & P estimates CMBS hotel delinquencies to be 8% by year end.

- Trepp said in May $2.3B in CMBS hotel loans were in special servicing.

- So four times as many loans will be delinquent by December.

- 4 X $2.3B = $10B.

- So assume the average hotel loan is $10M (lots of $5M loans many $20M and a few over $100M).

- $10B ÷ $10M = 1,000 hotels in CMBS default.

 

- Now CMBS is only 22% of commercial loans, banks have 43%.

- Assuming hotel bank loans are as delinquent as CMBS- (probably worse because many are construction loans) that means twice as many bank loans.

- So far we have 1,000 CMBS + 2,000 Bank hotel loans = 3,000.

 

- The other Commercial Lenders- pension funds, life companies, credit unions- that make up the other 35% of hotel loans probably have at least as many as CMBS with 22%; so say 1,000 hotel loans here.

 

1,000 from CMBS + 2,000 from banks + 1,000 from others = 4,000 hotel loans delinquent by year end – Happy Holidays!

 

Comments please. I don’t even have an MBA (but I didn’t make any hotel loans either), but it would be good for us all to get an estimate of the magnitude of the earthquake.