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CRE Finance World Winter 2016
24
D
2009 Was The Trough But Will 2015
Be The Peak For US Hotels?
Do CMBS Hotel Loan Delinquency Rates Accurately Reflect US Hotel Performance?
uring the Great Recession, CMBS hotel loan delinquency
rates were a trailing indicator of US hotel performance
according to CMBS loan data provided by Trepp and US
hotel performance metrics from STR, Inc. (STR is the
leading global provider of competitive benchmarking,
information services and research to the hotel industry.) Can any
trends be gleaned from recent CMBS loan delinquency and US
hotel performance data to serve as a basis for projecting into 2016
and beyond? Or are other sources of information needed to provide
a clearer glimpse into the future?
The answer to whether more sources of information is needed to
project into the future is a resounding yes, as will be made clear
later in this article in addition to the summary of 2015 and outlook
for 2016 that follows.
The November 2015 edition of PwC Hospitality Directions US
summarizes the state of the US lodging market in 2015: “Average
Daily Rate (ADR) growth continues to look for a firm footing,
despite peak occupancy levels.”
PwC then went on to reach the final conclusion for their full year
2015 outlook as well as projections for 2016.
2015 Outlook
• “Softer than expected ADR growth in Q3 driving Revenue Per
Available Room (RevPAR) increase of 6.5% for the year.
• Occupancy’s contribution to RevPAR growth more meaningful
than previously expected for some segments.
• US hotel occupancy expected to reach 65.6%, the highest level
since 1991.”
2016 Outlook
• “Supply growth reaching long-term average of 1.9%.
• As occupancy levels stabilize (at or near peak levels), ADR
growth drives RevPAR increase of 5.7%.”
In 2009 the hotel industry experienced the largest year over year
decline in RevPAR with a decline of -16.6%. May 2009 was the
month with the greatest year over year decline with a drop over the
prior year of -20.4%.
2009 opened with a CMBS hotel loan delinquency rate of 1.72%
in January, but it accelerated rapidly and rose to a peak of 19.3%
in September 2010 — 16 months following the largest monthly
year over year decline in RevPAR. However, it took only six months
for the CMBS hotel loan delinquency rate to hit double digits after
the largest RevPAR decline.
By contrast, the recovery in hotel performance was a lengthy one.
It took until 2013 — six years — for full year RevPAR to surpass the
pre-recession peak of $65.54 in 2007.
For hotel loan delinquency rates, five years is the time it took —
from September 2010 to September 2015 — for the peak to trough
cycle to run from the CMBS hotel loan delinquency rate high to the
most recent low of 2.9% reached in September 2015. While it took
only months for the acceleration in hotel performance metrics to
decline so rapidly, it took five to six years for the recovery to occur.
Could the same occur again, or are all cycles different?
Danny Balkam
Vice President, Special Servicing/
Special Assets
National Cooperative Bank