Fewer lodging mortgages delinquent in June but warning signs remain

Lodging property mortgages showed notable improvement in performance in June, but it doesn't necessarily mean the worst is over for the sector.

June's late payment rate for lodging loans of 17.6% is nearly 10 percentage points better than the same month in 2020, according to the Mortgage Bankers Association's CREF Loan Performance Survey. Compared with May, the performance of these loans is 2.4 percentage points better.

Even as Americans start traveling again as the pandemic wanes, the all-clear is not yet being sounded for the lodging sector.

Revenue per available room for urban properties was down 52% in May compared with the same month in 2019, according to the American Hotel & Lodging Association. For hotels near airports, the REVPAR was down by 33% and for suburban properties it was down 21%.

Of the 25 largest hotel markets in the nation, it considers 21 of them to be depressed and that is not likely to change soon.

The recent uptick in leisure travel is encouraging for hotels, but business and group travel, the industry’s largest source of revenue, is not expected to return to 2019 levels until at least 2023 or 2024, according to an AHLA press release.

The late payment rate for all commercial and multifamily loans was unchanged from 4.8% in May and down from 6.3% in June 2020.

"Commercial and multifamily mortgage delinquencies continue to be driven by loans backed by hotel and retail properties that ran into trouble during the pandemic and are now more than 90 days late," said Jamie Woodwell, the MBA's vice president of commercial real estate research. "We expect these late-stage delinquencies to wane as the economy continues to open and there is less uncertainty surrounding the prospects of these and many other property types."

The share of seriously delinquent loans — those 90 days late or more, or real estate owned — was 3% in June, down from 3.1% the previous month.

Meanwhile, late payment rates for all other property types increased on a month-to-month basis. The retail delinquency rate rose for the second consecutive month, to 10% from 9.5% in May.

Industrial property delinquencies rose to 3.1% from 1.9% in May, while office property owners late on their payments increased to 3.5% from 2.4%. For multifamily loans, June's delinquency rate of 2.1% was 30 basis points higher than for May.