Overbuilding is greatest threat to hotel CMBS, not Airbnb: Moody’s

A new report from the ratings agency noted specifically that overbuilding poses a greater threat to US hotels backing CMBS than the ‘minimal’ threat from peer-to-peer home renting platform Airbnb.

Moody’s is adding to the cacophony of industry sources warning about overbuilding in the US hotel industry.

A new report from the ratings agency noted specifically that overbuilding poses a greater threat to US hotels backing CMBS than the ‘minimal’ threat from peer-to-peer home renting platform Airbnb.

DT_timessquarelocation2_746x420_FitToBoxSmallDimension_UpperLeftAirbnb has caused some concern among a hotel industry worried about losing market share. But while travelers spent $2.4 billion on Airbnb lodging between October 2014 to September 2015, it was hardly a blip compared to the $141 billion generated by hotels, a CBRE study showed.

Moody’s senior analyst Jay Rosen noted that Airbnb competes mainly for leisure guests that would otherwise stay in lower-priced hotels, but it is less competitive for business travelers staying in higher-priced, brand name hotels.

“Given the construction that is currently planned or underway in the hotel sector, excess supply is the more likely near-term threat to traditional lodging-backed CMBS loans than is Airbnb,” he wrote in the report Airbnb Growth Poses Minimal Threat to Traditional Lodging Sector.

Fears associated with a maturing cycle, overbuilding and global instability have recently led other experts to ask when hotels will stumble following years of record growth.

“Hotels are the quickest to return when a market comes back, but they are the first to suffer during a downturn,” Mary McNeil, a managing director with Fitch Ratings, told Real Estate Capital last month after that ratings agency published a report noting that the sector is “peaking.”

Kroll Bond Ratings Agency (KBRA) issued its own report stating that despite strong growth each year since 2009, and record levels of demand, occupancy, average daily rate (ADR), RevPAR and hotel profitability in 2015, that “demand growth is tapering off as both local and global political and financial volatility has become more apparent in the latter half of 2015 and into 2016.”

Credit metrics also weakened in 2015: “KBRA observed loans structured with inadequate reserves… [and] it has also become more prevalent to securitize hotels with very limited operating history.”

Up until now, however, the sector has performed strongly. The lodging delinquency rate dropped 22 basis points to 2.60 percent in February, according to Trepp. That was the lowest rate among any of the major asset classes, with the exception of multifamily, which experienced a huge decline after the $3 billion Stuy-Town loan was paid off.

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