Wednesday, February 15, 2012

Hotel properties struggling nationally

The recovery in US commercial real estate continues to be spotty. Rental residential properties are doing reasonably well, although delinquencies are still high in Florida and other parts of the SE. One property type that is still a problem in this market is hospitality. The map below shows the distribution of REO properties (hotels that are now owned by the lenders).

% REO Hotels (source: Bloomberg)

Of course REO levels is a "backward-looking" indicator, given the amount of time it took banks to become the proud owners of dysfunctional hotels. What makes this particularly disconcerting is the percentage of hotel properties that are on the problem watch list. This measure counts properties that may not be able to meet their loan obligations, a more "forward-looking" indicator.

% Hotels on watch list (source: Bloomberg)

The problem areas are distributed nationally with Milwaukee, Sacramento, Hartford, Oklahoma City, and Raleigh being the five worst hit regions for hotel properties. This points to a substantial and potentially ongoing overcapacity in the hospitality space at the national level.

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