Fitch Ratings has revised its North American CMBS hotel asset performance outlook to negative from stable/negative.
The negative outlook revision for the sector is due to several factors including new supply and weakening economic conditions. Fitch expects RevPAR growth to flatten out in 2020 and then decrease by a low single digit percent in 2021. The impact from the coronavirus will exacerbate hotel cash flow declines and rising expenses from wages and real estate taxes may exceed revenue growth.
Hotels will be the first property type to be affected by the coronavirus due to reduced tourism and travel, and a slowdown in economic activity. Fitch expects hotel properties located in gateway cities, especially those with a large convention business or cruise line business, will be the most affected from increased cancellations and reduced bookings. In addition, hotels that have a high percentage of their revenues derived from food and beverage, and those with heavy reliance on foreign tourism will experience a greater decline in property-level cash flow. Hotels with revenue streams from casinos will also likely see deterioration in performance.
The Fitch-rated U.S. CMBS single asset single borrower (SASB) exposure consists of 15 transactions, 13 of which are secured by an individual hotel property and two by hotel portfolios. The transactions secured by an individual hotel property are concentrated in Florida (six deals) and Hawaii (four). The remainder are in Arizona (2) and California (1). The transactions secured by hotel portfolios include a Motel 6 Portfolio and a La Quinta Portfolio, both of which have had property releases since issuance.
Eleven of these SASB hotel loans have upcoming maturities in 2020. Fitch expects they will exercise their next one-year extension option given that liquidity to the sector is likely to be an issue. Ultimately, these loans have final maturities no sooner than May 2024. Hotel loans with 2020 maturities are:
- $510.5 million Grand Wailea (BX 2018-GW; loan maturity in May 2020; final extension maturity in 2025);
- $281 million Arizona Biltmore (BX 2018-BILT; May 2020; 2025);
- $891.5 million La Quinta Hotel Portfolio (JPMCC 2018-LAQ; June 2020; 2025);
- $356.6 million Santa Monica Hotel Portfolio (MSC 2018-SUN; July 2020; 2025);
- $345.3 million Four Seasons Resort Hualalai (GSMS 2018-HULA; July 2020; 2025);
- $1.4 billion Motel 6 Portfolio (MOTEL 2017-MTL6; August 2020; 2024);
- $447 million Walt Disney Dolphin & Swan Resorts (BAMLL 2018-DSNY; September 2020; 2024);
- $215 million Ritz-Carlton Kapalua (GSMS 2018-LUAU; September 2020; 2025);
- $475 million Hilton Orlando (HILT 2018-ORL; December 2020; 2024);
- $189.1 million Turtle Bay Resort (CGCMT 2018-TBR; December 2020; 2024);
- $597 million Grande Lakes Resort (DBWF 2018-GLKS; December 2020; 2025).
Fitch will continue to review and monitor the transactions closely in the near term.
For a list of the Fitch-rated U.S. CMBS SASB hotel exposure, please see Fitch’s special report “Fitch Revises North American CMBS Hotel Outlook; Coronavirus Adds to Expected Decline”, available at www.fitchratings.com.
