Hotelier Checking Out

While the jobs report came in less than hot, Reuters still described the labor market as “still-tight” on the first Friday of July. Fed Chair Jerome Powell and the other experts in charge of destroying jobs and job opportunities for common folk will no doubt raise rates this month and next. 

Higher rates have already taken a toll on real estate investors and now hoteliers. Bloomberg reports “Ashford Hospitality Trust Inc. expects to return 19 hotels to lenders in cities including Las Vegas and Atlanta.”  Hotels brands expected to be returned include Residence Inn, SpringHill Suites, and Marriott. The company issued a statement that the underperforming properties “are located in markets that have experienced significant headwinds throughout their post-pandemic recoveries, and a number of these markets are not forecasted to reach pre-pandemic topline levels until 2025 or 2026.”

It’s hard to imagine the cluster of these properties in Las Vegas  not doing well, being located just down the street from Allegiant Stadium. But, the statement is likely corporatespeak for “the properties are over-indebted with variable-rate debt and that rate has more than doubled in the last year putting the properties underwater.”     

Ashford’s lenders are requiring a paydown of about $255 million to extend the financing and $80 million in capital expenditures through 2025, according to Dallas-based Ashford Trust. “The equity in the properties is already negative, based on comparable sales and brokers' opinion of value, according to the statement,” writes Bloomberg’s John Gittelsohn. 

Ashford will not throw good money after bad. “At this time, it appears that the most likely outcome will be a consensual transfer of these hotels to the respective lenders,” the company said in the statement.

Ashford made a $121 million payment in June to extend a mortgage on four other hotels, reducing the outstanding mortgage debt by 33% to about $249 million and is currently working out deals to extend the debt on 15 other hotels in the portfolio by providing a total of $129 million in paydowns.

So many properties to save and only so much capital to do it with. 

More loans are coming due in November, a Morgan Stanley loan pool secured by 17 hotels.  “We currently believe that the loan should be able to be extended with no paydown required,” Rob Hays, Ashford Trust’s president and chief executive officer, said in the statement.

What Chairman Powell and the rest of the open market committee does in the meantime will have something to say about that.