Uncertain Business Travel Outlook Increases Credit Risk of Urban Hotel Loans
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Collection: On Point
The pandemic caused travel to cease and hotel occupancy rates to fall significantly. While all hotels faced revenue challenges during the pandemic, higher-end hotels catering to business travelers were hit particularly hard as companies leveraged technology to conduct business remotely. These revenue challenges caused hotel loan credit quality to deteriorate. This deterioration in credit quality was most evident for loans secured by hotels located in urban business districts, which tend to cater more toward business travelers. Because business-travel-related spending is expected to remain well below pre-pandemic levels through at least 2023, loans secured by properties located in more office-centric areas remain at risk.
Eric Reinauer, Harini Parthasarathy