Secondary Market Liquidity for Hospitality Loans

Spencer Kirsch, Vice President, Loan Sales and Real Estate Sales

Spencer Kirsch, Vice President of Loan Sales & Trading, describes the state of the secondary market for hospitality loans, along with how buyers and sellers have altered their view of the sector over the last several months.

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Full Transcript

It’s no secret how material the effect of COVID has been on the Lodging sector in the U.S. With COVID-restrictions in place and a sharp decline in business and leisure travel, the occupancy, ADR, and RevPar figures across the industry plummeted by the end of 2020. Per TREPP, in Q4 2020, the overall delinquency percentage of lodging loans on bank balance sheets was 13.3%, significantly increased from the 1.1% delinquency rate in the first quarter. Additionally, by Q4 2020, lodging occupancy rates had dropped to 43%, well below the 72% rate present in Q4 2019.

Hospitality-focused debt firms and private equity firms alike have quickly identified an opportunity to raise capital to deploy in the sector. These firms banked on the opportunity to buy loans at discounts and restructure debt at higher interest rates or take title of the real estate. However, this capital was raised at a point when banks and other note holders were first starting to implement deferral or forbearance plans and were not ready to sell deferred loans at a discount and book losses. This led to a 6-month period of little-to-no hospitality loan transactions executing in the market from Q4 2020 through Q1 2021.

Fast-forward to present day, when the majority of deferral periods have ended or are close to ending, yet the sector is still a-ways away from stabilization and hotel bottom-lines are insufficient to cover debt service. Banks and other note holders who are unable or unwilling to implement further deferrals for impaired assets or don’t want to go through foreclosure processes are now more amenable to selling loans and realizing a controlled amount of loss. This has increased the opportunity for investors to acquire impaired hospitality loans at a discount to Par, with exit strategy optionality in-play.

At the same time, there remains a plentiful amount of hospitality-focused investment capital waiting to be deployed, along with a newly-formed, positive outlook on the industry. June in particular has brought upon a number of encouraging signs, as the country hit the 50% mark of vaccinated individuals, flight traveler count increased to more than 2 million for the first time since March 2020, and June hotel occupancy hit 61% across the US, which is the highest percentage in the pandemic era. The combination of excess dry powder and positive economic trends has resulted in an increased amount of investor interest, as well as tamed forward-looking default projections and tightened required yields. Ultimately, these factors have enabled sellers to trade deferred, scratch & dent or non-performing loans at a manageable discount, which has proved to be more economical than negotiating a new deferral or going through a foreclosure process .

We at Mission have been quite active in advising sellers of performing and non-performing hospitality loans over the last quarter and have a number of hospitality portfolios in the pipeline. We have represented clients in transactions executing anywhere from manageable discounts up to Par pricing, while garnering interest from a wide-variety of investors, including banks, pension funds, hedge funds, private equity firms, and others. We expect the hospitality market to remain liquid through the foreseeable future as forbearance periods continue to end and debt holders continue to offload distressed exposure while the sector gradually moves toward stabilization.

 

Mission Capital Advisors Acquired by Marcus & Millichap

Posted Friday, November 20, 2020.

David Tobin, Principal of Mission Capital, discusses what our clients should expect from Mission Capital Advisors now that the company has been acquired by Marcus & Millichap. Hint: it’s good.

This is just the beginning so stay tuned to this space as we release more content pertinent to Mission Capital Advisors, Marcus & Millichap as well as Loan Sales and Real Estate Sales and Debt & Equity.

Due to an unprecedented volume of businesses seeking relief from the fallout of COVID-19, SBA-authorized Banks and Lenders receiving Paycheck Protection Program Form 2483 Applications are experiencing or will experience a variety of business process issues.

Mission Capital provides PPP Lender Support to Banks and Lenders in multiple ways:

  • Loan Processing – Average Monthly Payroll Cost / 2/15/20 Employee Confirmation (IRFN 4.2.20 Section 3bii – iii)
  • Form 2483 Addendum A / Addendum B Confirmation
  • Borrower Documentation Inventory – Application Documentation Required (“ADR”) Letters to Applicants
  • Data Warehouse: Compilation of Calculations / 2483 / 2484 / Alternative Assumption / Assumption Narrative
  • XML eTran File Preparation
  • Alternative Assumption Calculation / Documentation (IFRN 4.2.20 Section 4e)
  • Advance Purchase / Forgiveness Report Submission (IFRN 4.2.20 Section 4e)

Clarification of guidance and requirements for loan forgiveness / lender reimbursement are evolving.  Mission Capital PPP Lender Support ensures that Banks and Lenders are prepared for Advance Purchase / Forgiveness Report Submission.

How to Get Started With Mission Capital PPP Lender Support:

You are important to us, and we are here to help you in this trying time.

SBA CARES Assistance | April 2, 2020

Due to an unprecedented volume of businesses seeking relief from the fallout of COVID-19, Mission Capital is expecting long queues from most banking institutions qualified to lend the highly in-demand PPP SBA loans.

We know that you and your assets need relief quickly, are focused on asset management and corporate concerns, and are seeking assistance.  If you have a very strong banking relationship that is participating in the program it is always recommended to reach out to that institution first as they will give preference to existing customers in the queue.  We are standing by to assist those without strong pre-existing relationships or are concerned about waiting in a queue with lenders who may be unable to get them PPP loans as soon as possible.

The team at Mission Capital has been in constant contact with numerous SBA lenders – many of whom are our clients, as well as attorneys, and accountants to gain an understanding of how to size and optimize PPP proceeds and determine the effect the potential uses of proceeds has on loan forgiveness.  We are ready to assist you in navigating this tricky process as your Agent at no cost to you. As your Agent we will be compensated by the Lender based on the limited SBA approved schedule.

Starting on Friday, April 3, 2020, we can apply for these PPP loans on your behalf.  We encourage you to reach out to us as soon as possible and are happy to discuss any nuances with you over the phone at 212-925-7708.

In the meantime, please find relevant links below to expedite the loan application process.

  1. MCA Agency Agreement
  2. PPP Loan Application
  3. PPP DD Checklist
  4. PPP Loan Program Overview

Please send completed forms and documents to: sbacares@missioncap.com.  We can also provide a secure FileBox link for files containing sensitive information.  Feel free to reach out and/or send these items directly to your Mission Capital coverage executive as well.

You are important to us, and we are here to help you in this trying time.

Best Regards,
The Mission Capital Team