More Distress to Come in Hotel Sector

Apparently, it is going to get a lot worse before it gets better.The panelists included: Chuck Bedsole, managing director, hospitality and leisure group, Alvarez & Marsal Real Estate Advisory Services; Jerome Cataldo, president, Hostmark Hospitality Group; Geoff Davis, president, HREC Investment Advisors; Jim Holthouser, global head, full service, Hilton Hotels Corp.; and Richard A. Warnick, president and founder, Warnick + Co. The session was moderated by Maria Wood, contributing editor to Real Estate Forum, an Incisive Media publication.

When asked if the sector is seeing just the tip of the iceberg in terms of lodging property foreclosures, several panelists said more such events are likely. "Up until this point in time, most of the defaults have been technical defaults," Warnick said. "We're now moving rapidly into significant monetary defaults on loans. The question is whether lenders take those properties back or try to work with the borrowers."

Cataldo stated that his firm stays in close touch with lenders and special servicers and "those people are telling us that there's much more coming down the pike, particularly starting in the third quarter.Davis added that the distress is being experienced across all segments. "When you look at what's in default or what's on a watch list," he said, "it could be everything from full-service and luxury hotels, but there are also quite a few select-service hotels that were highly leveraged in the last cycle."

However, Bedsole noted that "a preponderance of projects that are in trouble or that are going to go into foreclosure in a very short period of time are going to be on the luxury side of the equation."

The panelists covered a wide range of topics, from the difference between dealing with a traditional loan versus a CMBS loan; the continued problems in the condo-hotel sector; and how operators can survive this downturn--hint: don't cut rates too much. "It's a heck of a lot more work right now to get three-quarters of what you had a year-and-a-half ago," Holthouser said.

The webinar is a recording of a discussion that took place in early June during the New York University International Hospitality Industry Investment Conference at the Waldorf-Astoria.

For a replay of the webinar through Oct. 5, go to: https://event.on24.com/eventRegistration/EventLobbyServlet?target=registration.jsp&eventid=153675&sessionid=1&key=4B1C803C36F4C62DCA59342B78617E66&sourcepage=register.