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CRE Finance World, Winter 2012

Lodging Sector in CMBS: Barclays CapitalJulia TcherkassovaDirector Outlook for 2012 W losses. Overall, we believe the lodging sector will be Hotel performanceFigure 2hile lodging comprises a relatively small percentage ofoutstanding CMBS conduit collateral, the sector hasbeen performing well below average — contributingan outsized share to overall CMBS delinquencies and the first to experience deterioration in performance if the broader economy slows meaningfully in 2012. We expect more liquidations from limited service hotels and more modifications implemented for the full service assets. We also expect the percentage of hotel loans unable to refinance at their maturity date to increase in the near term. Hotel performance closely tracks broader economic trends The performance of hotel properties is closely correlated with overall macroeconomic indicators, including GDP growth, consumer spending etc. The lag is also minimal. With an effective lease term of one day, any decline in overall corporate/leisure travel, as a result of a broader economic slowdown, is immediately felt in plunging occupancy rates. Hotel managers, for their part, have the luxury of calibrating rental rates on daily basis, again closely reflecting the Source: Smith Travel Research, Barclays Capital state of local supply and demand dynamics. Compare this to, for example, office properties, where tenants are locked in for five- As Figure 1 demonstrates, demand for hotel rooms substantially to 10-year leases with little scope for renegotiation, resulting in declined in 2009, as the economy entered a recessionary phase. longer lags to economic cycles. Since then, demand has bounced back sharply, growing by nearly 10% in 2010, driven by a turnaround in GDP growth rates. Our Expect demand to level off in 2012… economics team forecasts below trend growth over the next few Figure 1 years, averaging 1.8% in 2011 and 2.5% in 2012. Since demand Hotel demand and supply for hotel rooms is closely correlated, demand growth in the hotel sector is expected to decline somewhat from the highs of 2010, as corporates and private travelers cut back on discretionary expenditure. Using the data available through September 2011, demand growth fell to about 2%. Source: Smith Travel Research, Barclays Capital A publication of Winter issue 2012 sponsored by CRE Finance World Winter 2012 49


CRE Finance World, Winter 2012
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