Here are some mind boggling statistics about the hotel and motel real estate market:

• U.S. hotels are now seeing a record low occupancy of 45.1%. According to Smith Travel Research this is the lowest January rate since they began tracking statistics in 1987. The fact that hotels are now bringing a much lower amount of income has forced many property owners into foreclosure.
  In the past two years 40,000 U.S hotel employees have been laid off.
• According to Fitch Ratings hotel values have fallen by 50% from their peak in 2007. This has severely impacted the ability of hotel and motel owners to refinance their commercial loans which are coming due. Hotel owners are now finding it almost impossible to sell their hotels for what they owe on their mortgages.
• According to Trepp, a company tracking commercial real estate loans, securitized hotel loans reached a delinquency rate of 15.7% at the end of February. These securitized mortgages represent one fourth of all commercial hotel loans.
• 500 hotels across the U.S. have already been foreclosed upon by their lenders since 2008. However, most of these hotels have continued to stay in business.

For example, a client of ours purchased a flagged hotel in central Florida for 4.25 million dollars in 2005. A recent bank ordered appraisal came in at only 1.5 million dollars. The client currently has a loan on the property for 3.2 million dollars. The main reason for the decline in the value is the fact that occupancy has steadily dropped by 20% year over year for the past three years. Occupancy in 2007 was a solid 60%, occupancy in 2008 fell to 40%, occupancy in 2009 was only 20%. It goes without saying that the hotel owner was unable to continue to pay on his loan on the cash flow being generated on a 20% occupancy level. If there is any good news for hotel owners experiencing this kind of financial distress it is the fact that banks are not eager to take back possession of hotel properties.

Managing and operating a hotel business is not a realistic option for banks whose main area of business is lending money. Furthermore, it is estimated that a repossessed hotel that has no management in place automatically loses about 50% of its value. In these circumstances, the best way for a bank to guarantee a loss on their investment is to repossess the property.

In fact, banks are more willing than ever to negotiate with hotel owners who are facing financial distress because of a drop in business and the overall recession.

http://www.usatoday.com/travel/hotels/2010-03-19-hotels19_CV_N.htm

Delinquencies on hotel loans have reached a staggering high of 15.3% in January according the recently released Trepp Deliquency Report. In January of 2009 the rate was only 1.7%. The increase in delinquencies for hotel loans is another sign of the poor economic times experienced by the U.S. as a whole. The problem for hotel and motel owners is only expected to get worse. Commercial properties around the country are finding that they are not producing enough income to cover their expenses and debt service.

Hotels and motels are typically the most volatile class of commercial real estate and they react quickly to transformations in the economy. Travel is an expense that many corporations can curtail very quickly in a recession. The results of companies cutting back on their business travel can be directly seen in the large occupancy decreases at hotels and motels around the country.

Many hotel and motel owners are now seeking hotel loan modifications. As the unemployment rate has reached as high as 20% in some major economic areas such as Detroit and 10% average for the nation as a whole many hotel owners have seen their occupancies drop by as much as 80% in some areas. This is understandable considering the fact that a lot fewer families have the excess capital available to spend on vacations or travel. Business travel has all but dried up as a result of the economic downturn. Many hotel and motel owners have found that they can no longer afford to keep making their full mortgage payments and many others have decided to stop paying their mortgages all together.

According the many real estate analysts commercial real estate prices have declined by 40% on average. In some areas of the country this number has reached as high as 60% and we have even reviewed specific hotels and motels that have lost as much as 80% of their 2007 values. Almost every hotel or motel owner who purchased their property in the past 5 to 7 years now finds themselves owing more on their property than what it is worth and in the middle of the worst recession that the U.S. has ever seen.

Solutions for hotel owners are not easy to come by. It is now almost impossible to find financing for hotel and motel properties as most commercial lending institutions have either stopped lending entirely or changed their underwriting guidelines so drastically as to exclude all but the best deals from being financed. To make matters even worse, the Congressional Oversight Panel released their February report entitled “Commercial Real Estate Losses and the Risk to Financial Stability” where they predict that over 500 billion dollars of commercial balloon notes will be coming between now and 2011. Meanwhile, there are no banks sitting on the sidelines to refinance these properties.

The current economic times leave few options for hotel and motel owners who are in financial distress. The most recent hotel owner client of Commercial Capital Advisors, LLC is an nationally flagged chain hotel in Orlando, Florida. They purchased their property in 2007 for 4.25 million dollars. The most recent appraisal for the property came in at 1.5 million dollars. This represents a loss of over 2 million dollars in equity in just a three year period of time.

For many hotel and motel owners facing a similar situation, the best option they have is a hotel loan modification. In many cases a successful hotel or motel loan modification will be able to lower interest rates, give an extended period of forbearance, extend the balloon date for the note and occasionally reduce the balance of the mortgage.
For more information about commercial loan modifications for hotel properties visit: