The COVID-19 pandemic has impacted the global economy on a scale we have never seen, particularly in the travel and tourism industry. Hotel loans represent $400 million, more than 70%, of the assets we manage, so we’ve kept a close eye on economic conditions surrounding the hospitality industry.
The majority of our portfolio, more than 80%, is Marriott and Hilton branded properties, with the balance comprised of high-performing brands from other franchise families. These assets are located in 21 states in every major region of the country, and pandemic impacts on specific markets and properties vary widely. In general, larger markets and properties dependent on business and airport travel have been disproportionately impacted as compared to “drive to” markets and extended-stay properties.
At the onset of the pandemic we determined, based on a thorough review of the financial condition of each project, that 75% of our borrowing clients could continue to make their normal loan payments without interruption. These borrowers, with loans totaling nearly $350 million, have continued to make on-time payments on their loans throughout 2020.
The remaining borrowers, roughly one in four with loans totaling nearly $200 million, were expected to have stress on their operating businesses that would compromise their ability to make loan payments in the short term. Most of these borrowers received assistance from the U.S. Government’s Payment Protection Program (“PPP”) program, but we still believed it was appropriate to provide temporary payment relief while the impacts of mandated business closures and travel restrictions were the most significant.
Six months into the pandemic the national hospitality market has improved significantly, though occupancy remains nearly 30% below 2019 levels. Between improvement in market conditions and the operating discipline of our clients, most of the borrowers that were on deferred payment plans are expected to resume making their full loan payments by November of 2020. By the end of the year we expect more than 90% of our borrowers, with loans totaling $465 million, to be making payments in accordance with their pre-pandemic loan terms. Deferred interest amounts on these loans will be collected over the course of the next six to eight quarters. The remaining handful of borrowers will remain on deferred payment plans.
Looking forward, the curve of the hospitality market recovery flattened in the third quarter and is expected to remain flat over the winter months. We’ll continue to monitor national and local trends and the operating performance of our portfolio as we progress through this unprecedented recovery. We’ll also continue to provide updates via email, and you can find additional material on our website at avanafund.com. Should you have any questions in the meantime, please don’t hesitate to reach out to us or a member of our team.
Sincerely,
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Sundip Patel
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Michael Sheneman
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