Kroll Bond Rating Agency (KBRA) releases its Does 9/11 Provide Guidance for CMBS Lodging Performance? report.
With coronavirus cases increasing daily in the United States, business travel has been curtailed, vacations have been put on hold, and conferences and large events have been canceled. Widespread fear is wreaking havoc on the travel industry, which is weighing heavily on the lodging sector.
As with the tragic events of 9/11, the recent drop-off in travel and lodging is not economically driven, but rather consumer-related fear of travel in uncertain times. And while no two events are the same, 9/11 illustrates the level of credit deterioration that lodging experienced following a massive travel disruption. This may provide some historical guidance as to the economic fallout stemming from COVID-19.
Unlike 9/11, the drop-off is also driven by government-mandated economic shutdowns and border closures. The damage to the lodging sector from the effects of COVID-19 will be meaningful, with demand not increasing until there is more certainty the virus has been contained and economic activity returns to normal. In addition to demand concerns, the lodging industry is grappling with the supply that has come online and is scheduled to be delivered. According to STR, there are over 208,000 rooms under construction, which is close to its prior peak in December 2007 (211,700 rooms).
In this report, KBRA looked at CMBS 2.0 lodging defaults as well as RevPAR declines and the timing of recoveries in the aftermath of 9/11 at both the national level and metropolitan statistical area (MSA) for the 10 largest CMBS 2.0 exposures. Orlando had one of the highest cumulative lodging default rates (47.5%), as did Las Vegas (33.3%) from year-end 2000 to the 2004 cycle peak.
Click here to view the report.
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KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider and is a certified Credit Rating Agency (CRA) with the European Securities and Markets Authority (ESMA). Kroll Bond Rating Agency Europe Limited is registered with ESMA as a CRA. Kroll Bond Rating Agency Europe Limited is located at 6-8 College Green, Dublin 2, Ireland.
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