Hotels struggle in a sea of debt
Houston’s hotels are floundering during the pandemic. Seventytwo percent of securitized lodging loans in the area are delinquent, according to securities data company Trepp, compared to 23 percent across the nation.
Trepp has predicted a “wave of foreclosures” over the next several quarters.
Social distancing measures meant to prevent the spread of COVID-19 have hit the hotel industry particularly hard. Business travelers are meeting over Zoom instead of coffee; conventions, sporting events and festivals that once attracted visitors have been canceled; and though leisure travel has begun to return, many are opting to escape cities rather than visit them.
Houston-area hotels are struggling more than those in other cities, including Dallas and Austin. Borrowers are behind on $720million in loan payments out of the $995 million inHouston-area hotel loans that have been packaged into commercial mortgage-backed securities and sold to investors. Just $248 million out of $1.48 billion (23 percent) is delinquent in the Dallas area and $310 million out of $886 million (35 percent) in Austin.
That’s because Houston’s hotel market is dealing not only with the pandemic but also an energy bust, according to commercial real estate firm CBRE.
Consider the Marriott Houston Westchase. Even before the pandemic, the hotel was struggling with its debt, in part because of its dependence on travel related to the weakened energy sector, according to credit ratings company Fitch Ratings (Fitch Ratings is owned by the Houston Chronicle’s parent company, Hearst). The arrival of COVID-19, which ended all non-essential travel formany companies, worsened its situation. As of September, Fitch said, the hotel’s loan was more than 90 days delinquent, though the Marriott remained open for business.
Hilton Houston Post Oak similarly experienced a decline in performance as the energy sector softened, according to Fitch, then got hit with a double whammy when the novel coronavirus took hold, halting most travel. Its loan was 90 days delinquent as of July.
Because of complications in energy-related industries, Houston is likely to take longer to recover than will the nation and other major Texas markets, according to the CBRE. It predicted Houston’ s hotel market may not recover to prepandemic levels until 2024.