The commercial real estate industry has been closely monitoring the news surrounding debt maturities for over a year now. While most attention has been on office and multifamily properties, a recent report from JLL highlights another sector that is cause for concern – hospitality. Specifically, there are $5.8 billion in U.S. hotel single-asset securitized loans (such as CMBS and CRE CLOs) set to mature in 2024.
According to the report, one of the main challenges facing this sector is profitability. Despite strong RevPAR numbers due to increased leisure demand and a return of business travel, many markets still struggle with profitability issues related to international business and group demand recovery.
In addition, higher interest rates are also posing a challenge for hospitality owners looking to refinance their loans at more favorable terms. The average fixed interest rates have increased by 332 basis points since 2020, reaching 7.7% in Q1 of 2024.
Furthermore, property insurance costs continue to rise due to inflation and climate change-related weather hazards which can disrupt cash flow for hotels located in coastal gateway markets.
As these challenges make it difficult for hotels with maturing loans to generate enough income to cover their debt costs if refinanced at current interest rates; however there may be opportunities for investors as JLL predicts that the number of maturing loans under critical stress will decline over time presenting short-term investment opportunities before market conditions improve.
