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One In Five Hotel-Backed Loans Is Now Delinquent

One In Five Hotel-Backed Loans Is Now Delinquent

In the monthly CMBS Market Trends update from Fitch we read that the hotel delinquency rate has just passed the psychological 20% delinquency threshold for the first time. As of August, 20.80% of all hotel-backed loans is in some stage of delinquency (up from 18.64% in July): that means that one in five (and rising) hotel-backed loans will likely never be repaid and proceed to liquidation. These and such are the ways, when underlying assets refuse to generate enough cash flow to satisfy interest requirements, let along create equity value… Which should explain why publicly-traded REITs are trading at near record highs. There was also substantial deterioration in the Multifamily space, where the delinquency rate is nearly 15%. Yet not every sector worsened: there was marginal improvement in the Retail and Office space, at 6.11 and 5.06% respectively. From a big picture standpoint, the climb in delinquencies was mitigated by record loan resolution, as $3.1 billion in incremental delinquencies was offset by $2.1 billion in resolutions. Among the actions that make up the latter category are liquidations, repayments upon refinancing, corrections, and modifications. This will be an interest trend to watch, since the delinquencies will likely not plateau for many months, leaving work outs as the only option for books to pad their books and present an optically slightly better image of overall loan quality. In the meantime, we expect the Norwegian sovereign wealth fund to buy up every piece of hotel CMBS due to the fund’s recent brilliant discovery of the “Mark-to-Infinity” concept. Full Fitch release: Record Loan Resolutions Stem Climb in Delinquencies

http://www.zerohedge.com/article/one-five-hotel-backed-loans-now-delinquent

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