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INHOSPITABLE
W hotel in Dallas
The nation's hotel news isn't very  positive  these days. Only seven(CMBS-financed) assets totaling $76M were disposed in 2009 and hotel properties represented the fifth largest amount of  resolutions with losses, says  Fitch Ratings. Losses ranged from 29.9% to 126.5%, with an average loss severity of 81.9%, approx. double the cumulative average of 41.1% (note: one Florida REO asset skews the data with a huge loss). PKF Capital Hotel Realty managing director Hank Wolpert  says the assets involved were mostly larger resort or luxury- type properties that were simply  over-leveraged (at purchase or refinancing) during the high-flyer period. These assets were primarily CMBS and highly coveted for several years with acquisition prices soaring.
 
Hank Wolpert
Due to the declining performance in the lodging sector over the past few years and limited number of buyers or financing, servicers have viewed modifications as an attractive workout option, Fitch reports. Because hotels lead in outstanding delinquencies, servicers will be challenged to resolve at lower loss severities. Fitch predicts that loss severities for hotel properties will continue to outpace the historical average in the near term. Hank, above, tells us there is no shortage of buyers  now, but they're taking a more cautious underwriting  approach based on trailing performance and more realistic estimations of future proforma  performance.
 
Homewood Suites in Denton
The lodging industry still has some sex appeal, Hank tells us. A number of hotel REITs  have launched this year and multiple asset portfolio sales  are increasing along with individual asset sales, he says. Financing is still a struggle as lenders and insurance firms tiptoe back into the market with  lower LTVs  and more recourse deals, he says. Many established relationships will result in an uptick of major players getting some financing and doing deals. And the all-cash buyer is in the catbird seat right now, he reminds us. Fitch's not-so-good news: performance is expected to stabilize in 2010, but YOY RevPAR growth won't kick-in until 2011.
Related Topics: Hank Wolpert, PKF