Luxury Hotel Industry About to Collapse Under $24.5 Billion in Debts

The luxury hotel industry has been showing signs of struggling over the last year or so, with a number of high end hotels defaulting on loans, but a recent report from Realpoint LLC, a credit rating agency that follows the commercial mortgage-backed securities suggests the problem may be somewhat larger than originally thought. According to Realpoint, $24.5 billion may be in danger of default, representing loans against some 1,500 luxury hotels.

According to the report, a $90 million loan secured by the Four Seasons San Francisco, a 277-room, five-star property, is 90 days delinquent and foreclosure proceedings have begun. This is the second lawsuit so far this year for the Four Seasons with the San Diego Aviara resort also in financial troubles.

Bloomberg has a more comprehensive list of luxury hotels facing foreclosure and suggests that U.S. hotel loan delinquencies may rise to 8.2% by the end of the year. Personally – I think that is wildly optimistic – especially given the slow down in world wide travel. Lanzarote tourism was down 16% in August, lagging some what behind the Spanish travel industry – both of whom relied heavily on British visitors with home equity to spend. Realpoint

Similar issues are being faced in the UK, where the amount of commercial debt defaulting is threatening to outweigh the residential defaults. The stop-gap measures by the British government to prevent foreclosures in the residential market have all but bought the market to a standstill, with sales down nearly 80% from peak and the pound continues it’s slide against the Euro and the Dollar, which will continue to pressurize the travel industry.