Feeding frenzy coming as banks dump distressed hotel loans

Europe’s banks are going to be forced into selling more distressed property loans in the coming year as borrowers default, a major Bloomberg real estate summit in New York was told this week.

“There’s going to be a feeding frenzy soon” for European loans, said Robert Blumenthal, a managing director at Deutsche Bank Securities Inc. “Someone’s going to have to take those loans out at a significant discount” and inject “huge amounts of equity” to recapitalise the assets.

European lenders have 151.4 billion euros ($204.8 billion) of commercial real estate loans in default, compared with $121 billion at U.S. banks, according to New York- based data provider Trepp LLC, and the hotel and resort sector is a major risk.

The first quarter of 2012 is going to be “grim” the conference heard, and because the CMBS market isn’t coming back fast enough to help borrowers refinance debt coming due, there will be a “huge increase” in U.S. hotel foreclosures next year, said Robert Sonnenblick, a hotel developer.

About $21.7 billion in CMBS (Commercial Backed Mortgage Securities) loans on 232 hotels are coming due in the next 12 months and need to be refinanced, according to Realpoint, a securities ratings firm now owned by Morningstar Inc. At best, a third of that will be refinanced, with many properties being taken over by lenders, Sonnenblick said.

Private-equity firms and real estate companies over the past six months have been staffing up in London in anticipation of bidding for distressed debt in Europe, said Glenn Rufrano, president and CEO of Cushman & Wakefield.

Huge increase in hotel foreclosures expected in 2012

Developer are increasingly talking about how the U.S. hotel world will see a “huge increase'” in foreclosures in 2012 as debts come due and financing remains hard to come by, Bloomberg reports.

A foreclosed hotel is one in which the owner is unable to make mortgage payments.

The lack of money means greater odds that guests will notice cost cutting or signs of a lack of investment, although hotel managers typically try to do the best they can to make sure guests won’t notice their property’s financial troubles.

“You’re going to see a huge increase of hotel foreclosures,” Robert Sonnenblick, chairman of Sonnenblick Development, said during the Bloomberg Commercial Real Estate Summit in New York.

According to another developer, boutique hotel pioneer Ian Schrager, the expected flood of hotel foreclosures is also ruining some plans to build new hotels. Here’s what he told Bloomberg:

“It’s very difficult to build when everybody’s anticipating there’s going to be a flood of existing assets at opportunity costs to buy,” said Schrager, who estimates he can build new hotels in New York City for as little as $400,000 per room.

High-end hotels in major U.S. cities such as New York, Boston and San Francisco have recovered more than other markets so far during the recovery, the piece notes.

In the past couple of years, we’ve seen a range of foreclosures especially at high-end and luxury properties including Starwood’s W Atlanta-Downtown and Capella Telluride hotel in Colorado’s ski country.