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HomeStatistics & TrendsHotel delinquency rate remains low, despite dramatic declines in RevPAR in 2001, 2002

Hotel delinquency rate remains low, despite dramatic declines in RevPAR in 2001, 2002

PricewaterhouseCoopers<.> forecasts that delinquency rates will peak this year at 5.5 percent of…

PricewaterhouseCoopers<.> forecasts that delinquency rates will peak this year at 5.5 percent of outstanding loans, well below the levels in 1991 and 1992 of 16 percent. According to PricewaterhouseCoopers’ research, the majority of problem loans already have become delinquent or are currently being restructured.



In addition, PricewaterhouseCoopers’ analysis reveals low maturity risk for lodging C-Corp and REIT loans, as improvements in RevPAR (revenue per available room) are expected to coincide with the significant number of loan maturities in the second half of 2002 and 2003.



PricwaterhouseCoopers studied data from numerous sources, two of which represent the range of delinquency rates:


  1. For loans held by life insurance companies, the delinquency rate increased to 0.71 percent in December 2001 from 0.10 percent in September 2001, according to the American Council of Life Insurers and Mortgage Loan Portfolio Profile. The delinquency rates declined to 0.31 percent as of March 2002. Life insurance companies hold approximately 13.0 percent of total lodging property debt.

  2. For CMBS (commercial mortgage backed securities) lodging loans, the delinquency rate increased from 2.7 percent in June 2001 to 5.6 percent in December 2001, according to Standard & Poor’s Structured Finance Commentary. The delinquency rate rose to 8.3 percent in February 2002 and declined slightly to 7.7 percent in March 2002. CMBS loans account for approximately 22.0 percent of total lodging property debt.


During the trough of the recession in 1991, the delinquency rate was 11.0 percent, increasing to 16.0 percent one year following the recession, 1992.

PwC research indicates the following points appear to explain why a significant level in delinquency rates in the lodging industry has not occurred:


  • Eight consecutive years of record profits through 2000, compared to four consecutive years of losses through 1989;

  • Historically low interest rates, causing interest expense as a percentage of total revenue to decline from 13.8 percent in 1990 to 3.4 percent 2001. In 2002, interest expense as a percentage to total revenue is expected to be 3.7 percent;

  • Better loan quality following the 1990 to 1991 recession due to stricter underwriting standards, resulting in lower loan-to-value ratios (LTV) and higher debt-service coverage ratios (DSCR);

  • The average LTV ratio between 1996 and 2001 was 61.3 percent, or 8.6 percent of value below the average LTV during 1984 to 1990. The average DSCR from 1995 to 2001 was 1.81:1, or 24.0 percent above the average DSCR from 1978 to 1989 of 1.46:1;

  • Lower break-even occupancies due to continued focus by management to control costs and reduce expenses. In 2001, the break-even occupancy was 51.0 percent, compared to 65.2 percent in 1990. In 2002, break-even occupancy is expected to be 48.8 percent;

  • Lenders demonstrating flexibility to work-out/restructure loans in technical default and to generally avoid foreclosure unless management is acting in bad faith or a property might be worth more as another property use; and

  • Slower room supply growth, portending more favorable market conditions in the future making cash calls to owners and patience by lenders appropriate strategies.

Theodore Koumelis
Co-Founder & Managing Director - Travel Media Applications | Website

Theodore is the Co-Founder and Managing Editor of TravelDailyNews Media Network; his responsibilities include business development and planning for TravelDailyNews long-term opportunities.

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