CMBS lodging issuance soaring to new heights

The US CMBS market is experiencing the greatest volume of lodging issuance in more than five years. There were nearly $10.1bn in CMBS loans for lodging issued so far this year, more than any other property type.

The US CMBS market is experiencing the greatest volume of lodging issuance in more than five years. There were nearly $10.1bn in CMBS loans for lodging issued so far this year, more than any other property type.

The sector will only continue to grow during the next several years as new loans are issued and maturing loans are refinanced, according to a new report from Trepp.

Screenshot 2015-05-30 at 12.50.54 AMAbout $41.5bn worth of lodging CMBS loans are set to mature through 2017. Intimidating? Perhaps. But delinquency rates for the sector have fallen dramatically since their peak of almost 20% in 2010 to 4.2% in April 2015.

Because delinquencies are low, there will likely be fewer losses than there were in the last five years, when real estate market fundamentals were weaker and about $30bn in lodging loans were disposed with combined losses of $3.2bn, according to the report.

“The ability to refinance these maturing lodging loans should be easier for borrowers, given that many of these loans are current on their payments,” said Joe McBride, a Trepp research associate.

In addition, healthy lodging fundamentals and low interest rates will work to the advantage of CMBS originators and borrowers. And there is a small number of lodging loans carrying appraisal reductions, “which will help the ability to refinance since property and loan values will remain high if there is no reduction issued,” McBride added.

Yet the sector still faces several challenges. Among them, rising interest rates; and slower global growth and a strong dollar that could potentially affect foreign travel to the US.

“If the US economy weakens and travel slows, lodging demand will fall, loan distress will increase, and loans could become more difficult to refinance,” the report stated.

 

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