After writing about mixed messages that investors received on the lodging industry recently, hotel special servicers may be in store for more troubled loan workouts and defaults as well. Lenders and senior business executives do not seem very optimistic this last quarter based on two recent news reports. According to the survey in the ABF Journal, there is more bad news and trouble ahead based on the “Lending Climate in America” just published*. This excerpt says it best: “I was not expecting such negative indications from lenders this quarter,” says Michael Jacoby, Phoenix Senior managing director and shareholder. “While I anticipated seeing an overall decline in domestic lending, it was a surprise to see that it dropped by fifty-one percentage points in comparison to last quarter’s survey. I can’t recall seeing such a large decline.” *Note: “The Phoenix Management “Lending Climate in America” Survey is conducted quarterly to gauge shifts in lenders’ attitudes toward the economy. Lenders from various commercial banks, commercial finance companies and factors across the country are surveyed each quarter.” This survey is predominately about commercial real estate, such as lodging loans, before it goes to hotel special servicers. In a separate survey in Bloomsberg News, chief executives of businesses across the country expressed a similar outlook going into next year. According to one excerpt: “Thirty percent of the executives said they expected the economy would improve in the next six months, down from 45 percent who gave that response three months ago.” If you are a bank hotel special assets advisor, this survey mirrors what the lender survey found but a bit less drastic. Based on both findings, lenders with REO hotels trying to gauge the business activity next year should not fire their temporary hotel property management services or remove the receiver yet! And, if these results hold firm, hotel special servicers can expect another tumultuous 12 to 15 months in the hospitality sector going forward.
