This week’s statement of the irreversible closure of the renowned 44-story Hilton Times Square hotel in the heart of New York City was a wake-up call for the embattled hospitality market, specifically in city markets struggling with a coronavirus-driven tourist dry spell.
The relocation follows a choice previously today by Ashford Hospitality to turn over the secrets to its just recently bought Embassy Suites in Midtown West to its lending institution after the realty financial investment trust fell back in financial obligation payments.
In truth, 34% of hotels in New York City alone are presently overdue, and hospitality financial investment bank Robert Douglas sees more hotels at danger of closing.
“Most hotels are using capital reserves to help cover interest payments in the near term and the vast majority of hotels in New York City have missed debt service coverage tests that will result in cash flow sweeps and will limit the ability, absent lender agreement, to get loan extensions that would normally be automatic,” stated Doug Hercher, handling director and principal at Robert Douglas. “This is the tip of the iceberg.”
Fourteen New York City residential or commercial properties with loans in the business mortgage-backed securities universe are 60 days or more behind payment, according to database of securitized home mortgages Trepp. Tracking specific loans, the Standard Hotel in the Meatpacking District, the Holiday Inn in the Financial District and Tryp by Wyndham Times Square South are amongst the residential or commercial properties that have actually defaulted.
A a great deal of these hotels lie around Times Square and Midtown, communities in New York City that generally draw countless travelers and are popular locations to remain for company travel.
Broadway is constantly a natural draw for worldwide travelers, and remaining at a hotel close-by is frequently part of the experience. But with programs not anticipated to go back to the Great White Way up until next year, hotels near the most significant theaters stay almost empty.
Even prior to the coronavirus pandemic, professionals were worried that there were a lot of hotel spaces in New York City. Over the last 5 years, designers included more hotel spaces to the Big Apple than any other market in the U.S. — 6,131 in 2019, up from the 3,696 spaces in 2018, according to hotel management analytics company Smith Travel Research.
It stays to be seen whether present hotel owners can discover the methods to settle their financial obligation and keep the lights on.
“Many hotels will definitely close, particularly those that originally were conversions from residential to hotel and are located in more residential neighborhoods,” Hercher stated, discussing that it’s frequently simple to transform those hotels back into apartment or condos.
“Purpose built hotels like the Hilton Times Square are harder to convert and are not located in traditional residential neighborhoods. In those instances, it’s pretty clear that owners are playing hardball with the unions and will reopen, though maybe under new ownership, if they can get meaningful concessions,” he included.
The tension hotels are dealing with is not restricted to New York City. Trepp information reveals delinquencies are increasing considerably in Houston, Chicago and Los Angeles.
The American Hotel & Lodging Association and other lobbying groups continue to press Congress for extra monetary relief as Paycheck Protection Program loans dry up, leaving owners’ issues increased.
“We need urgent, bipartisan action from Congress now to keep hotels open so that our industry and our employees can survive and recover from this public health crisis,” AHLA chief Chip Rogers stated.