The Hotel Industry is in Dire Straits

Almost one in four hotels, 23.4%, are at risk of defaulting on their mortgage payments, according to a new national report by Trepp. That’s a historic record. When 2019 ended, the rate was 1.3%, but that was a different time.

Nearly 4,000 hotel industry executive have signed on to a letter sent to Congress asking for help for theirs and all small businesses.

The hotel industry has been extremely hard by Covid19 as citizens have been placed on lockdown in some locales, businesses have halted travel, and vacationers are staying home. You don’t think of hotels as having to pay the mortgage.

“As with most homeowners, most hotels large and small are financed by virtue of a lien that has to be paid on a monthly basis,” explains Doug Uloth, an attorney in North Texas who has handled bankruptcy cases, including for hotels. He says a slight difference in bankruptcy code as it affects hoteliers adds additional pressure other businesses don’t face.

The absence of a revenue stream puts pressure on hotels who must continue paying vendors for food, cleaning supplies, laundry, utilities, and the rest. “They either have to find a way to work it out outside of bankruptcy or use the bankruptcy process to restructure their mortgage obligations,” he says.

Uloth offers guidance for those considering Chapter 11 bankruptcy.

One slight glimmer of hope. As of August 15, hotel occupancy was 50.2%. It's the first time since Mid-March occupancy has gotten over 50%.

photo: getty images

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