The commercial real estate industry has been closely monitoring the issue of debt maturities for over a year now. While most discussions have focused 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.
One major challenge facing these loans is profitability, despite strong RevPAR numbers in 2023 compared to pre-pandemic levels. This is especially true for markets heavily reliant on international business and group demand, which continue to struggle with rising labor costs, property taxes, and operational expenses.
Another obstacle is the persistently high interest rates that investors face when refinancing their loans at higher rates than before the pandemic hit. The average fixed interest rate for U.S hotel securitized loans has increased by 332 basis points since 2020.
Furthermore, according to experts at JLL’s recent Federal Open Market Committee Meeting , it seems unlikely that the Federal Reserve will lower its Effective Federal Funds Rate anytime soon – making refinancing an unfavorable option for borrowers with upcoming loan maturities.
In addition to these challenges, property insurance costs are also on the rise due to inflation and climate change-related weather hazards – particularly affecting coastal gateway markets where many hotels are located.
Overall this presents a short window of opportunity for investors looking to take advantage of market dislocation caused by maturing debts totaling $5.8 billion in critical stress ($4 .2 billion expected by JLL analysts). As such , it may be wise f or owners facing impending loan maturities t o consider selling their properties instead of attempting t o refinance under current conditions .
