13 July 2023
CMBS holders are facing losses as hotel REIT investors suffer significant setbacks. The intricate financial setup of hotels, involving publicly traded hotel REITs, variable-rate interest-only mortgages, and commercial mortgage-backed securities (CMBS), has created a convoluted situation. The hike in interest rates has caused mortgage payments to double, while hotel property values have plummeted. As a result, hotel REITs are abandoning properties, taking total equity losses, and leaving CMBS holders to bear the remaining losses. This third wave of defaults in 15 years is driven by soaring interest rates, leading property owners to walk away instead of seeking resolutions. The default rate for lodging CMBS has surged to 5.3% in June, surpassing even the default rate for office mortgages. Ashford Hospitality Trust and Park Hotels and Resorts are among the companies that have walked away from properties, leaving CMBS holders with substantial losses. This trend reveals the consequences of overleveraging and variable-rate commercial debts in the corporate world.