Back when the first CMBS loan relief was offered, no one could have predicted how little it would help. Its 90-day deferral of payments got hotels through April, May and June only. Then June rolled around with no end in sight and so a second wave of CMBS loan relief arrived in the form of a 6-month relief package which would defer payments through the end of the year. For both of these packages, the deferred payments would need to start repayment January 2021, but here we are in August and hotels are nowhere near back to normal cash flow. Since only about one in five U.S. hotels received significant debt relief from CMBS lenders, the industry is now looking for a long-term assistance plan.
According to a June Trepp report, a staggering 10% of CMBS loans were past-due by 30 days or more. That’s an 8% increase in just two months. Many CMBS borrowers are struggling to negotiate relief with special servicers with reports of some charging a 1% fee for a 6-month deferral. Experts are predicting that CMBS borrowers will face an unprecedented wave of foreclosures this fall.
According to American Hotel and Lodging Association (AHLA) president and CEO Chip Rogers,
“Right now, many hotels are struggling to service their debt and keep their lights on, especially those with CMBS loans,” Rogers added. “Without action to shore up commercial debt, especially CMBS loans, the hotel industry will experience mass foreclosures and permanent job losses which will snowball into a larger commercial real estate crisis impacting other segments of the economy.“
And with most experts predicting a years-long recovery process, it could be close to 2024 before hotels return to pre-COVID revenues. To help with relief efforts, the AHLA created HotelsACT – an affiliate grassroots advocacy organization to enhance hotelier’s ability to influence policy debates by focusing on the economic impact of the lodging industry across the country.
According to Ann Hambly, industry leader in CMBS servicing, hotel owners need to fully understand all their options before requesting CMBS relief. She has outlined the three types of COVID relief for CMBS loans to help hoteliers make better decisions.
Type 1: Performing loan consent
- Covers up to 3 months of payments
- Loan must be current and have funds in reserves
- Must be paid back
Type 2: Short term deferral
- Covers up to 6 months of payments
- Loan must be with a special servicer
- Must be paid back
Type 3: Modification of loan
- This is a permanent change to the terms of the loan
- May include payment reduction, debt deferral or debt forgiveness
For the first two types, the loan must be paid back, which could put a hotel in an even bigger financial hole once the loan comes due. Hoteliers must consider their own specific situation when considering this type of relief.