Recently the Trepp company, the leading CMBS and CLO data provider, produced a list of problem securitized hotel loans that were liquidated during 2021. These, almost 40 loans, can provide a basis for determining a Recovery Factor and by extension a Loss Given Default figure for use in the PrecisionLender solution. The experience in 2021, is likely a conservative point to measure what can happen when a hotel loan goes into default.

Of the various real estate asset classes, hotel loans generally had the second worst performance during the Pandemic. The shut down of travel during most of 2020 and parts of 2021 was strongly felt by the hotel industry. Fortunately, most hotel types have seen an improvement since the introduction of vaccinations, although some business type properties in certain cities are still suffering as of the Spring of 2022.

The data is based on servicer reports of hotel loans within securitized structures. These were primary limited service, name brand, hotels (Holiday Inn Express, Springhill Suite, Hampton Inn), with some Extended Stay and Full-Service Properties. They range in size from 54 to 381 rooms, with a medium size of 92 units. For the Limited-Service properties, the medium appraised value was about $10 million, for the full service the figure was about 2.5 times higher. These properties are located throughout the USA. Most were built within the last 30 years.

The information provided gives the liquidation proceeds for each of these properties. Liquidation proceeds includes the sales price of the properties and any brokerage commissions. It does not include any legal expense to acquire the property from the borrower, maintenance expense on the property prior to sale, servicer advances for interest not paid.  As a percentage of the appraised value at time of securitization, the recovery factor for all types ranged from 73% to 11%, the medium was a little less than 46%. However, the recovery factor for Full-Service properties was very skewed, with about half under 33% and the other half over 55%.

The time it took from the beginning of the resolution process to sale range from about one month to over five years. The medium was about 1 year. If we take the 46% recovery figure, deduct 1 year of lost interest at 4% per annum and deduct another 2% for legal and other outside costs, using a net recovery value of about 40% seems to be a reasonable figure. If you are interested in the actual data, please contact your sales representative at Trepp.

For those who use a facility rating translating the 40% recovery value into a Loss Given Default (LGD) factor is dependent on the loan to value (LTV) ratio. If the LTV for hotel loans is usually 75% then the LGD is 46.67%. At an 80% and 70% LTV the LGD would be 50% and 42.85%, respectively.


Entering Factors in PrecisionLender

From the Dashboard, select the Administration tab and then select Products from the list in the left panel.

In the Products section, select a loan product from the list.

To make changes, select Edit and then go to the Credit Configurations & Assumptions section. If you are using recovery values, make sure Collateral and Guarantees is selected next to Loss Given Default Calculation Method.


Next, choose the hotel loan category. If no category is present, you can add a new collateral type and then add the Recovery Factor.


If you are using the facility type method, make sure Facility Ratings is selected next to Loss Given Default Calculation Method.


Once you have made all necessary changes, be sure to select Save.