COVID-19 has wreaked absolute havoc on many industries but hotels seem to be getting some of the worst of it. A new national report from Trepp, a data analytics firm, the demonstrated that the hotel industry is facing a historic wave of foreclosures as a result of the coronavirus.
Since the beginning of the pandemic, the hotel segment has seen a historic number of delinquencies and is the most heavily hit sector of commercial mortgage backed securities (CMBS). Nearly 4,000 hotel industry leaders sent an urgent letter to Congress urging immediate action to help hotels avoid foreclosure and the loss of tens of thousands of jobs.
Ultimately, the report showed that the percentage of loans that is 30 or more days delinquent is 23.4% as of last month—the highest percentage on record. By comparison, the percentage of hotel loans that were 30 or more days delinquent at the end of 2019 was 1.3%.
From a financial perspective, the report cited $20.6 billion in hotel CMBS loans were 30 or more days delinquent as of July, compared to $1.15 billion as of December 2019. The highest volume of delinquent hotel loans during the Great Financial Crisis was $13.5 billion. To put a number to it, the current percentage of loans that are delinquent now exceeds the highest level during the Great Financial Crisis by 53%.
With record low travel demand, thousands of hotels are not able to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently. In the process, tens of thousands of hotel employees will lose their jobs and small business industries that depend on these hotels to drive local tourism and economic activity will likely face a similar fate.
One thing to think on from a consumer perspective, is what happens if a hotel goes bankrupt while you are staying there? Or even before you arrive?