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Lenders Worried Hotels Will Lose Value This Year

A third of lenders who specialize in the hotel sector believe that hotels will lose value in 2019, according to the latest Hotel Lender Survey by STR, Hotel News Now and RobertDouglas.


That reflects an upswell of concern about valuations among lenders, since according to last year's survey, only 9% anticipated that hotel values would drop, Hotel News Now reports.

Also, 24% of the respondents expect hotel lending volume will drop in 2019. Only 11% thought so a year ago.

Even so, a large majority — 70% of the respondents — expect hotel lending volume to remain about the same over the next 12 months as in 2018.

The survey includes input by 66 respondents from across the spectrum of hotel-oriented lenders, representing most of the hotel debt originated in the U.S. in 2018.

For the fifth year in a row, according to the survey, a sizable number of lenders (40% of respondents) cited a possible U.S. economic slowdown as the biggest threat to hotel loan portfolios.

Another fear among lenders is refinancing risk due to higher exit cap rates or higher future borrowing costs. By contrast, lenders aren't as worried about hotel oversupply now as they have been in previous STR surveys.

Lenders aren't the only ones feeling nervous about the state of the hotel industry.

The industry had a 102-month stretch of consecutive monthly year-over-year revenue per available room increases until last year. That came to an end in September when RevPAR declined by 0.3%. Some experts blamed the decline on the effects of hurricanes in Texas and Florida.

“The way the economy goes is the way the hotel business goes,” LWH Advisors CEO Dan Lesser said at a Dallas hotel conference in December.

The U.S. hotel industry is projected to suffer a further slowdown in performance growth in 2019 and 2020, according to STR and Tourism Economics’ latest forecast, which was released at the Americas Lodging Investment Summit.

“Now demand is softening, and although supply growth is stabilized, we expect our first year without an increase in occupancy since 2009," STR President and CEO Amanda Hite said.