Hotel CMBS

Here is a good, long article from Bloomberg on why Commercial Mortgage Backed Securities (CMBS) special servicers try to avoid foreclosures on hotel properties.  Here are a couple of key quotes from the article:

Special servicers, who negotiate with landlords on behalf of investors in commercial mortgage-backed securities, typically install a receiver or hire a broker to sell an office, apartment or industrial building with multiyear leases. Hotel rooms, on the other hand, rent by the night, and contracts with such operators as Marriott International Inc. may be terminated if a property is repossessed, making it harder to run or market.

Hotels are “operating assets where income goes up and down overnight,” said Rick Kirkbride, chairman of the resort, restaurant and recreation practice group at law firm Paul, Hastings, Janofsky & Walker LLP in Los Angeles. “Servicers do drag their feet with them a lot more because they aren’t sure what to do.”

And:

The 53 percent workout rate for hotels compares with 45 percent for apartments, 37 percent for retail properties and 29 percent for industrial, according to Real Capital. The remaining hotels either have been taken over by lenders or their owners continue to negotiate with servicers.

“We work long and hard to not take title to hospitality assets because it’s not an easy solution to operate,” Tom Nealon, vice chairman of LNR Asset Services, the special- servicing unit of LNR Property Corp., said in October at an Urban Land Institute conference in Los Angeles. With “office and other properties that are not as labor-intensive, the marketability is better,” he said.

In addition to the operational aspect, it also helps when a borrower has a large amount of debt outstanding spread over multiple properties.  Examples of loans that were extended and reworked were several hundred million dollars or more.   The article states that in the last two months of 2011 there are $5.5 billion of hotel CMBS loans maturing and in 2012 there are $9.1 billion of CMBS loans maturing.