This page has been archived and commenting is disabled.
One In Five Hotel-Backed Loans Is Now Delinquent
In the monthly CMBS Market Trends update from Fitch we read that the hotel delinquency rate has just passed the psychological 20% delinquency threshold for the first time. As of August, 20.80% of all hotel-backed loans is in some stage of delinquency (up from 18.64% in July): that means that one in five (and rising) hotel-backed loans will likely never be repaid and proceed to liquidation. These and such are the ways, when underlying assets refuse to generate enough cash flow to satisfy interest requirements, let along create equity value... Which should explain why publicly-traded REITs are trading at near record highs.
There was also substantial deterioration in the Multifamily space, where the delinquency rate is nearly 15%. Yet not every sector worsened: there was marginal improvement in the Retail and Office space, at 6.11 and 5.06% respectively. From a big picture standpoint, the climb in delinquencies was mitigated by record loan resolution, as $3.1 billion in incremental delinquencies was offset by $2.1 billion in resolutions. Among the actions that make up the latter category are liquidations, repayments upon refinancing, corrections, and modifications. This will be an interest trend to watch, since the delinquencies will likely not plateau for many months, leaving work outs as the only option for books to pad their books and present an optically slightly better image of overall loan quality. In the meantime, we expect the Norwegian sovereign wealth fund to buy up every piece of hotel CMBS due to the fund's recent brilliant discovery of the "Mark-to-Infinity" concept.
Full Fitch release:
Record Loan Resolutions Stem Climb in Delinquencies
While the pace of defaults remains elevated, a record number of loan resolutions in August again tempered the effect of $3.1 billion of new delinquencies, according to the latest U.S. CMBS delinquency index results from Fitch Ratings.
Recent defaults on five loans greater than $100 million contributed to a 23-basis point (bp) net increase in the U.S. CMBS delinquency rate to 8.48%. Meanwhile, $2.1 billion of loans were resolved or liquidated last month.
'Though special servicers are working out loans at an increased rate, the volume of new delinquencies has not yet subsided,' said Senior Director Adam Fox. 'Highly leveraged loans originated at the market's peak continue to default as borrowers seek modifications or hand back the keys to underperforming assets.'
In August, three loans in excess of $100 million and rated by Fitch Ratings became newly delinquent due to performance issues, including:
--$825.4 million Innkeepers Portfolio (two pari passu notes)
--$140 million Hyatt Regency – Bethesda
--$129.5 million Lynnewood Gardens
The Innkeepers Portfolio loan, secured by 45 hotel properties, is in danger of having several of its franchises terminated due to the borrower's failure to complete property improvement plans. The borrower filed Chapter 11 Bankruptcy on July 19, 2010 and is attempting to secure financing to complete property improvements required to retain the franchises.
The Hyatt Regency – Bethesda loan was a candidate for modification, but the special servicer commenced foreclosure when talks with the borrower reportedly fell through. The Lynnewood Gardens property has been unable to generate adequate cash flow to service its debt since issuance.
In addition to the loans that defaulted during their terms, two large loans last month defaulted at their respective maturity dates and are now classified as non-performing matured. They are the $160 million Highwoods Portfolio loan and the $141.1 million (combined A and B note) Lakeforest Mall loan.
Of the $3.1 billion new delinquencies in August, $1.1 billion (36%) corresponded to hotel-backed loans, pushing the hotel-specific delinquency rate past 20%. Current delinquency rates by property type are as follows:
--Hotel: 20.80% (from 18.64%)
--Multifamily: 14.18% (from 13.87%)
--Retail: 6.11% (from 6.35%)
--Industrial: 5.55% (from 5.20%)
--Office: 5.06% (from 5.08%)
More than 200 loans totaling $2.1 billion that were delinquent in July did not reappear in August's list of delinquent loans due to a combination of liquidations, repayments upon refinancing, corrections, and modifications. Resolutions from the index included three loans with balances in excess of $100 million. Of the three large resolutions, one loan was reinstated due to recapitalization; one loan is in forbearance while refinancing is being sought; and one loan remains the subject of negotiations for a potential modification or foreclosure.
Fitch Ratings' delinquency index includes 2,931 loans totaling $37 billion that are at least 60 days delinquent or in foreclosure out of the agency's rated universe of approximately 40,000 loans comprising $436.9 billion. The Index excludes rated loans that are 30 to 59 days delinquent, which currently total $2.7 billion. Fitch Ratings maintains Stable Rating Outlooks for approximately 76% of its U.S. CMBS portfolio. Most remaining bonds are either considered distressed (3%) or have a Negative Outlook (15%).
Fitch Ratings currently rates approximately 1,900 bonds totaling $69 billion with Negative Outlooks. As defaults are continuing and expected to continue through 2012, the agency expects further negative rating actions to occur, although to a lesser extent than those in the past. Deals from recent vintages with large amounts of specially serviced loans are most susceptible to downgrades, including the A-M (original mezzanine 'AAA') tranches.
»
- 13733 reads
- Printer-friendly version
- Send to friend
- advertisements -
I bet Boilermaker will have something to say about this.
forget hotels Homes are where it's at Fannie is starting a new 0% down program You are supposed to put $1000 down but no worries if you dont have it. State agencies will grant you $999.33. The last $0.67 is up to you sucker!
http://www.fundmymutualfund.com/2010/09/zero-down-mortgages-restarted-by...
Do you want housing to crash again?
How can people afford a $115k house making $32k a year if they have to put money down?
Get with the program - no money, no problem as long as you're buying a house at full price.
tradermark, i love your breakdowns of equities and the economic situation in general. how about some cross posting on ZH, make it official :D
Fill a million homes at list price and no downpayment...instantly fix the problem of home price depreciation! Brilliant!! While we're at it, pay the bankers another trillion or two for pushing the paperwork to the government!
I'm sure all will be right in the world when the banks are forced to foreclose on 90% of them.
so this will be my last friday playlist for y'all. i've really enjoyed putting them together in the spirit of keeping tunes bumping on this fine fine blog of ours. it is a best-of not just of my previous playlists but some of marla's favorite tracks as well :)
freshy fresh (a playlist): http://www.youtube.com/view_play_list?p=B64086D4A6EDA49C
ps: forgive the spammy nature of these postings, last week remember ;)
great stuff steaky! nice and meaty
Why last week? It seems people enjoy the music...
my friend, its hard to articulate but i believe music and this site mingle together to make something special. this aren't the last tunes i'll be dropping for your/y'alls enjoyment. But till next time def check the couple of sets on RadioZero
http://radio.cl.zerohedge.com/
And for the continuous bump, if you've never heard of di.fm (digitally imported), they have some good sets on the regular.
thanks for gettin down on the tunes traderjoe...if you're so inclined i think anyone can drop a playlist fwiw \o/
My Magic Kool-Aid says "80% of hotel loans are current."
Woot!
yep. I'm gonna be drinkin' some of that in about 02:30
I've got some of Alice's brownies that will go great with that.
+1000
LOL. Let's stage a major rally as it's less bad as feared.
Sorry, but that is not up to Obama speech writing standards. How about:
Greater than a super-majority of hotel loans are current.
Or
If hotel loans were senate votes, their current status would be veto proof.
Try more spin, like this:
The listener is left to conclude that President Obama is good for America, families, and small businesses. Basic rhetoric.
----------------------------------
Know Obama, know rhetoric.
No Obama, no rhetoric.
In spite of what Republicans will tell you, my policies have created or saved 60% of all hotel-backed mortgages. I will discuss the specifics at tomorrow's news conference. Or the next day's. Or the next day's.
The valuations on publicly traded REITS are absolutely absurd. There will be some pain there when all is said and done.
+1
LMAO, we're shocked, yes shocked, to hear this news. Who could ever have seen this coming? </sarcasm>
If you didn't see this coming ten miles away, you're either (1) a normal person who has a "real" life and doesn't intimately deal with this kind of investing fraud on a regular basis, or (2) a moron.
Let's recap: CRE valuations will continue to decrease. We've not even started the unwind for CRE. That will lower future valuations and increase future defaults (as a positive feedback loop). The debt roll-risk in the CRE market is massive, spiking in 2011 and 2012, and those loans will *not* be rolled. The "owner" liquidations will be massive, as will the owner walk-aways (since these are and will be increasingly negative on an absolute valuation basis, as well as on a cash-flow basis).
Traderjoe is right, valuations on REITS are absolutely absurd. Doing the math, those deals *NEVER* made sense -- e.g., they were NPV negative the day the deals were put together. They didn't blow until now because they were lifted with the rest of the investment ponzi (e.g., increasing market liquidity, valuations were not based on future projected receipts, but instead on expectation of future speculative growth that was mathematically impossible).
Hint: The professional analcysts are in group (2).
Oh, this is why SRS is only down 0.5% instead of the usual 4%
Would you rather be owed money by a 1 star hotel or a 5 star hotel?
Somehow I don't see many people looking at starting a 1 star hotel on purpose and looking for a bank loan.
What exactly is a one star hotel? I'm guessing a filty shared room and cup for a shitter.
your local slay 'em and lay 'em.
They don't even rent by the hour.
They rent by the 1/4 hour!
i wonder what one does with the extra 10 minutes?
Wipe your ass with the shower curtain.
you're so hoity-toity tm. why not just leave 111's on the wall?
LMAO....you guys are funnier than a fart joke.
smoke-it & poke-it.....
And people wonder why the hotels are having problems with Cimex lectularius.
What no freebees on a Friday?
You making me work for it.
Cimex lectularius
Bedbug - Wikipedia, the free encyclopedia
Well the solution to this problem is obvious. We need to update the definition of "delinquent" to better match the optimism and reflect the recovery our bold President has engineered. If you squint real hard and think about it, loans really aren't delinquent until the debtor's phones are disconnected and the power is turned off. Until that happens there is hope.
That should fix it -- next!
Hey, you are on to something here.
Loans are not delinquent until the Supreme Court or Ben Bernanke issues an opinion on the loan.
I used to work in risk management at a bank. There was a banker who used to always say 'A company isn't delinquent until they're 90 days past due.'
Obviously the old "standards" are outdated and do not correctly apply to our New Era Economy....I hear that Obama has created a new comission to lok into reformatting various financial definitions....bring them up to date and more in line with the times...Timmy will be Chairperson.
Don't worry, The stock pump machine is on it. Rally on.
This entire move for the last two weeks has been on vapor-thin volume. It's become a joke to watch a 5 minute chart of the S&P when suddenly, out of nowhere, a green candle begins to reach for the sky. Comical...for now.
So that is the new term...resolutions...
Everyone wonders, why would anyone lend money to hotels? The market is so oversaturated.
Ans: it's the cheapest way to acquire hotels. When the company bankrupts, you have seniority over the equity holders.
If hotels default, they will do it in large groups, depressing the value of the hotel in question as well. By putting up a small sum of money (relatively speaking) you can acquire a larger asset. Worst case, the note will be fully paid off.
Good to know they are going bankrupt during their "summer over recovery" as well. Wait until this December when 1 in 3 will be delinquent.
Maby the corexit paintjobs are un appealing.
More hotel loans are going delinquent because the people who were living there found $100k+ jobs and can now afford to buy houses and iPads now.
At least that's what the Bureau of Truthiness would say.
nice photo, of me!!!
why I ought a impode your over spent hotel.
There are bone heads that still want to
build brand new hotels still today.
Not only do they still want build brand new hotels, some of them are getting tax breaks in order to do it!
This article contains not one, but two downtown hotels (one rebuild and one remodel) under the guise of urban renewal.
Luckily they do require some level of private finance, which is why one of them doesn't look like its going anywhere.
Hey, Alfred, here's an avatar for you:
http://www.boingboing.net/images/x_2008/hopelessobey.jpg
SPG just spiked another $3 on this report. sarcasm/off.
1 in 5 hotels are built half-cocked, without any strategic planning or foresight. While that may be odd, what is surprising is that these eyesores get funded.
It's the American way
1.) Pick some stupid oversaturated industry. Any industry.
2.) Get a huge loan.
3.) Provide a service that's already easy to find.
4.) Profit!
5.) Pay yourself a huge salary for being so damn smart.
If this doesn't work, declare bankruptcy, wait a couple of years, and try again.
Only 1 in 5 are delinquent, better than the 5 in 5 worst case scenario so party on Ben, party on Timmah!
Anyone else watching the market trying to make a mad dash for the 200DMA before close?
I thought it had already crossed?
I have the 200DMA as 1115ish.
Does this poll take Red Roof Inn's into consideration?
FED's prime assets....
Just Like Soc Gen's Delta desk ;>
Nothing to worry about. There are laws and procedures in place for the wind downs to protect the debt holders.
Wait, what?
Like GM bankruptcy, where the bond holders got protection dibs on first scraps...no wait. Well anyway, looks like worse news=great news and markets run like a scalded ape!
Maybe Fannie and Freddy can start selling hotel rooms as low income, no down payment, zero interest condos. That should solve the problem.
Or, get HUD approval and have the welfare set move in extended stay style. Baby momma gets weekly room service. Everyone wins.
Maiden Lane NAV? Nearly back to par including FRBNY repayments. That's some mighty trading BlackRock!
O yuk!
But what % of Maiden Lane is CMBS?
Five to one, one in five. No one here gets out alive...
http://www.youtube.com/watch?v=lQrAULjiysk
I got no love with this one on the Zuckerman post - let's see what happens here. A good lol. And off topic.
http://www.youtube.com/watch?v=sWS-FoXbjVI
Love.
Ahh.
Does this mean my Starwood points are in jeopardy?
Stephen Rushmore in a June 2010 article (LHonline.com) said that values are to increase more than 20% per year for the next three years. Victor Hugo once said 'adversity makes men, and prosperity makes monsters." The supply of men has dwindled and are going Galt.
REITs
what a bank-manipulated criminal farce
Wasn't travel and tourism a big driver for employment growth on last weeks release? I'm not saying there's a conflict with the data...I'm just saying.
you see, they aren't delinquent because their business is doing poorly - because the economy is recovering and is so robust and thriving really - they are delinquent because the managers are simply slackers. They forgot to pay ontime. Hey what's the big deal? This is bullish because they've now got extra cash to spend on travel and tourism!
Ahh, the ol' "variance due to timing" bridge note, I like it.
"Hello, Accounts Payable? Yes, this is he. Oh, Citi? Are you a guest? I can transfer you to guest...my mistake, I see, you hold our debt and you haven't received last month's payment. Well, I can transfer you to accounts receivable in that case...yes I am aware that accounts payable handles expenses. I do apologize about the mixup, you say you're looking for a check now? Do you have the number? Ohhhhh I get it now, you haven't received it yet and want to know when you can expect it! Gotcha, well, you see, I already sent it out in the mail, you sure you didn't get it? I tell ya, the mail service sure does suck around here, go figure, those worthless government yobs, couldn't hack it so they suck on our teets, right? Let me call up the postmaster and file an official complaint and find out where that check is, and if you receive it, give me a call right away!"
It's in the mail, bitches...
The stock market can only crash from this level of disconnect
good luck to all dip flippers
Yep good luck to all the pumpers, theyll need it, this pump is so thin I have no idea whats holding it together except for satanic chants.
You squeeze water thru a smaller and smaller diameter hose and you get higher pressures. The actual pumping can become irrelevant. What's not to understand?
Rocky, then the Reynolds Number gets above 4k or so and we leave laminar flow regime and get chaotic. Then it gets interesting.
- Ned
The transition to turbulent flow is not always quick and painless. I'd say we are at that point in the process now.
I'd been waiting ever so patiently for the much overdue motel-bubble rant.
Long live the ponzi.
It seemed clear to me hotels were in bad shape every time I put some ridiculous offer on Priceline and was shocked when they accept it. I've gotten 4-stars in downtown Chicago for almost the same rate it cost me to park my car there.
Speaking of which, I cannot believe car rental companies are in a huge circle jerk to overbid for taking each other over. I can generally get full size cars in most cities for $25 a day or less, after taxes/unlimited mileage! They must be cooking the books somehow to be showing profits.
I guess because they figure the Fed will buy them out once they get in big enough trouble.
I just wonder what kind of gravy fleet deals they got from Government Motors.
"Giveaway" kind, is my guess. Why else is it damned near impossible to rent a Honda Accord or Toyota Camry when they're the best-selling vehicles in America? I keep getting handed the keys to some vehicle with a name I never heard of before...Cobalt? Crossover?
Rental car companies have never had it so good. Used vehicle prices have been on a steep incline since late 08. Previous repurchase agreements with manufacturers would mandate the rentals fleets to sell the vehicles back in some cases with only 12 or 15k miles on them. Toady they run the cars to 35 or even 50k miles. They used to pay $16k for a car, run it 15k miles and get back $10k. Today, they pay $16k, run it for 50k miles, and recapture $13k. One big oil shock like spring 08 and the whole thing falls apart, just like everything else.
Wow, look at the market cringe on this news. Down a huge +47 points. I am patiently waiting for the charts.
Simple those REITs selling near all time highs have the big money backers to buy on the cheap all the REITs on the verge of massive loan defaults. The winners have been chosen and will sweep up those losers at pennies on the dollar.
This could be seen a mile away when ML and other did all those equity raises in 2009.
Hmmm....
Failed to generate adequate cash flows. Is that euphemistic for "No one ever stays there so the bed bugs starve?"
Bed bug subsidy, or endangered species protection, coming in a Congressional proposal near you. Paying the homeless to sleep there in a new WPA program aimed at environmentalism. FDA subsidies to bed bug farmers. Don't laugh.
And these are just the worst debts that nobody's willing to refinance, at least not until they're seriously threatened with getting nothing but the collateral.
Meanwhile the financial sector blithely refinances huge amounts of other "good" debts at current rates, so it can all blow up in their face when interest rates rise, and they can go back to Washington for another bailout, if there's anyone left there by then.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
I suspect the " best of the worst " of those negative watch bonds lurk just behind this batch of $69B. These BOTWs are always the ones making compromise payments....at least paying something til the rogue wave hits them. No way $69B covers the wreckage of a 40%+ downturn in commercial values. Not even close.
The no tell motel's bond smell
could cause panic from CRE hell
Wells Fargo
Economics Group
September 10, 2010
Special Commentary
Credit Quality Monitor: September 2010
Credit Shows Some Improvement but Challenges Remain
As with the economy in general, improvement in the credit environment continues, but credit indicators are mixed and the situation remains challenging. The overall loan delinquency rate fell in the second quarter, with all loan types seeing declines from the prior quarter. Some delinquency rates are even down from the prior year, most notably for credit cards. While residential delinquency rates remain far above year-ago levels, the year-over-year difference has come down markedly. Even the much beleaguered commercial real estate sector saw a decline in delinquency rates.
http://www.forexhound.com/article/Fundamentals/Mid_Long_Term/Credit_Quality_Monitor_September_2010/236433
Easy fix to increase hotel revenue - charge $25 for each bag the customer checks-in....
I guess Motel 6 won't be leaving the light on for you.
The last time I stayed in Boston for a single weekday night it was 400 dollars after Mumbles Menino got his cut. The room was opulent and looked more like a laywers office with its appointments. All the luxury you'll never need.
I would have slept in the car if it wasn't reimbursed.
Updated DOW weekly chart:
http://stockmarket618.wordpress.com
Thank u, i found this for a long time.
cheap site hosting | windows web hosting | windows vps hosting