Developer Predicts Steep Increase in Hotel Foreclosures

Developers are apprehensive of a wave of foreclosed hotels entering the market as within a year commercial loans taken by the hotels will mature. There is little chance of these loans being refinanced. Although the hotel industry was one of the first to recover following the crash now the prospect looks bleak.

Hotel developer Robert Sonnenblick has predicted that there will be a “huge increase” in hotel foreclosures in America. There are innumerable commercial properties backed by mortgage security that urgently need refinancing.

The wave is swelling. He thinks that this “is going to be a close-to-catastrophic problem”. Sonnenblick of Sonnenblick Development (chairperson) said while talking in New York at Bloomberg Commercial Real Estate Summit said, “The end result of all of this is you’re going to see a huge increase of hotel foreclosures”.

There are 232 hotels carrying loans worth $21.7 billion. These commercial loans will become due within the coming twelve months and require refinancing as per the findings of Real point. Maximum only a third will manage to be refinanced while the lenders will take over the other properties.

Following the 2008 Lehman Brothers collapse, the hotels, in the real estate group were among the earliest to recover thanks to the rebounding of tourism and travel. According to a recent report of Mortgage Bankers Association the lending to hotels went up 5 times from the 3rd quarter of the previous year.

During the recovery the big hotels in the big cities like San Francisco,Boston and New York have performed the best. The rate of occupancy was 71% for the top hotels till September. For other hotels it was 62% as per the findings of Smith Travel Research of Henderson ville in Tennessee.

Although booking have gone up, financing continues to be a big problem impeding construction and sales said Jason Pomeranc of Thompson Hotels (co-owner). He owns and operates boutique lodging units in major cities. He said, “Traditional lending is still extremely difficult. Buyers want to buy. Sellers will need to sell. Someone is going to have to blink at a certain point”.

The fear that hotels will soon be foreclosed and that these units will soon enter the market is putting off lenders from granting loans for new buildings said Ian Schrager of Ian Schrager Company.

He is in one of the forerunners in the introduction of the concept of boutique hotel. He explained that at this juncture there are hurdles in going ahead with new construction because “everybody’s anticipating there’s going to be a flood of existing assets at opportunity costs to buy”. He has calculated that new hotels can be constructed in New York City for a modest rate – $400,000 for each room.

Developers are planning to construct 50 hotels till the end of 2013 – being three times more than Washington, the second busiest city in America.

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