As U.S. Hotel Market Peaks, Loan Transfers to Special Services Increases

After four years of warning signs that pointed to a peaking U.S. hotel market, Fitch Ratings’ prediction is coming to fruition as more hotel properties in the country’s top metropolitan markets transfer loans to special services in the midst of facing pressures from oversupply.

An increasing number of hotel properties transferred to special servicing in the past two years, making up the largest percentage of commercial mortgage-backed securities loans since 2010 (CMBS 2.0). On Jan. 29, Fitch reported that just over $690 million in hotel loans were in special servicing by the end of 2017. For the most part, however, the hotel loans engaged with special servicing have smaller balances at an average of about $15 million.

Oversupply is also an issue within the hotel market, with the supply of rooms under construction exceeding 20% of the number of rooms currently available. This is becoming especially prominent in areas such as Dallas, Denver, Houston, Miami, Nashville, New York and Seattle.

“We expect revenues across the broader U.S. market to grow through the end of 2018, albeit slowly, and the impact on CMBS to be limited this year,” Fitch reported.

—Andrew Michaels, editorial associate

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