Hotel debt relief requests pour into lenders; magnitude ‘greater’ than after 9/11

30 March 2020

Hotels are emerging as the first wave of commercial real estate borrowers to seek debt relief from lenders in the pandemic as cancellations quickly cut off their daily cash flow, according to two large special servicers and a property adviser.

 

CWCapital along with master servicers it works with and Greystone Special Servicing have been barraged with calls and emails from hotel owners requesting debt relief due to the unprecedented drop-off in business caused by the pandemic and stay-at-home orders, executives at the servicers said.

 

“Everybody’s talking and trying to figure out how we’re going to handle this,” said James Shevlin, president and chief operating officer at CWCapital. Distressed pleas are “significant” and “greater” in number than those seen after 9/11, and come from small hotels in tertiary markets and big properties alike, he added.
A typical request is for 90 days of forbearance, he said.

 

Ann Hambly, CEO of 1st Service Solutions, was concise with her appraisal of the situation. “It’s almost every property,” she said.

 

The American Hotel & Lodging Association and Asian American Hotel Owners Association on Friday cited “unprecedented cash flow crisis” for hotels as they asked for federal relief, via the market for commercial mortgage-backed securities. In a letter to the US Treasury, the Federal Reserve and the Securities and Exchange Commission, the industry groups relayed that many members were unable to pay debt service and asked for additional liquidity for the bonds that are large sources of funding for the hospitality sector.

 

Hambly also said the CMBS industry needs to find a way to cut borrowers some slack, especially since other commercial real estate lenders offer more flexibility to their borrowers. “I’m convinced it will implode the whole CMBS Industry” if nothing is done, she said.

 

CWCapital plans to take a systematic approach to borrowers asking for various types of relief ranging from interest-only payment periods to a waiving of certain types of escrow payments, Shevlin said. Still, it could take several weeks before it will be able to take the steps needed to settle on how to respond to the requests, he said. It is also examining whether the relief will trigger a transfer to special servicing.

 

Paul Smythe, managing director of Greystone Special Servicing, said in a statement that the chain of events has caused the emergence of forbearance requests across the entire CRE industry.

 

In retail, the coronavirus crisis is exacerbating issues already plaguing the sector, said Shlomo Chopp, a property adviser who handles CMBS workouts and specializes in retail.

 

“Retail was staying alive by the grace of a bunch of speculators,” Chopp said. “Now the problems on the horizon are here, sooner than anyone expected.”

 

“The [borrowers] that have major issues,” Chopp continued. “I don’t even know that the borrowers know what to propose or what to ask for. If your Macy’s is closing, what are you going to ask for?” Chopp said.

 

by Maura Webber Sadovi and Guelda Voien