If you listened to the American Hotel and Lodging Association (AHLA), the nation’s hotel lobbying giant, you might get the impression that U.S. hotels were primarily threatened by unsustainable debt loads. The AHLA has been pushing Congress for months to bail out hotel owners with commercial mortgage-backed security (CMBS) debt, and they are getting closer to their goal. Over a hundred Representatives signed onto a letter expressing support for the Treasury and Federal Reserve to bail out the $540 billion in CMBS debt that couldn’t be assisted through existent programs.
While the letter mentioned “businesses of all types and sizes” being threatened by the economic fallout of the pandemic, in the hotel industry CMBS debt is a creature of big business. Most troubled hotel CMBS debt is owed by large publicly-traded REITs and private equity firms, not by Mom & Pop small businesses.
Even more concerning, a large quantity of this debt is already in trouble. About $19 billion of hotel CMBS loans were in a category called “special servicing”, a step before default where borrowers are seeking some form of relief from bondholders. A quarter of CMBS debt in “special servicing” is owed by just 3 large real estate investors.
Some of the more notable CMBS debt holders included:
- Monty Bennett’s Ashford companies owe $2.3 billion in specially serviced CMBS loans on 53 hotels as of 7/22/20.[i] According to the Federal Election Commission, Bennett has donated more than $350,000 to Trump’s candidacy and committees, and a similar amount to Republican candidates and committees since 2015. Bennett-related companies drew scrutiny for receiving $68 million of PPP funds before returning the money.
- Tom Barrack’s Colony Capital, a $50 billion private equity firm, has $2 billion worth of hotel CMBS loans in default as of 6/27/20. Barrack served as Chairman of President Trump’s 2017 Inaugural Committee.
- The storied Fontainebleau Miami Beach Resort owes $975 million in the largest CMBS hotel loan in the country as of 7/20/20, and the resort is seeking forbearance[ii] from bondholders, even though the owner cashed out $191 million in 2 refinancings in 2018 and 2019.
- Gordon Sondland owns 7 hotels with $205 million in CMBS loans that are delinquent as of 7/20/20.[iii]
- The Marriott family owns 2 hotels with $37 million in CMBS loans that are delinquent as of 7/20/20.[iv]
Big investors and lenders may benefit from a CMBS bailout, but workers certainly won’t. Although you wouldn’t know it from the AHLA’s rhetoric, the debt woes of hotel owners have very little, if any, bearing on whether the millions of laid-off hospitality workers will be able to return to their jobs.
During the Great Recession, many hotel owners with unserviceable loans fell behind on their payments. Some even defaulted and handed over their keys to lenders. Some workers (about 7%) lost their jobs over the course of 19 months of continuous revenue declines – attributed by the Bureau of Labor Statistics to decreased demand, not foreclosures.[v] But the hotels never stopped operating, and new owners emerged to buy the hotels at bargain basement prices.[vi]
In the current crisis, millions of hotel workers have already lost their jobs. Prospects for the hotel industry won’t materially improve until the public health crisis abates and people feel safe traveling again. That’s why it’s a little hard to take when a lobbyist says with a straight face that handing over billions of dollars to private equity firms and other real estate investors with CMBS debt will somehow “save jobs.” We’re getting a little tired of saying it, but show us the receipts.
[i] Trepp, 7/22/20
[ii] “forbearance” per Trepp 7/20/20
[iii] UH compilation from publicly filed CMBS prospectuses and distribution reports.
[iv] Thomas Point Ventures is ownership vehicle.
[v] See also “U.S. Lodging-Backed CMBS Bracing For The Impact Of COVID-19,” S&P Global, 3/23/20. https://www.spglobal.com/ratings/en/research/articles/200323-u-s-lodging-backed-cmbs-bracing-for-the-impact-of-covid-19-11399346
[vi] See for example, the Stanford Court in San Francisco (https://money.cnn.com/galleries/2009/real_estate/0907/gallery.Luxury_hotels_in_default/2.html); the Pleasanton Sheraton (https://www.eastbaytimes.com/2010/02/08/troubled-pleasanton-sheraton-sold/ and https://www.pleasantonweekly.com/news/2009/02/06/pleasanton-sheraton-owners-default-on-loan); and the W San Diego (https://www.wsj.com/articles/SB124441227998992281).