Congressional and Administration officials are trying one last time to pass a stimulus bill before the pre-election recess. American Airlines announced 19,000 furloughs today which will be reversed only if new aid from Washington is forthcoming. Other major airlines (United & Delta) are expected to follow suit, and these layoffs will have a ripple effect throughout the economy. Many analysts are pointing to statistics that indicate the recovery from the 2008 Great Recession was slowed by the lack of continued stimulus. A large bill was passed in early 2009, but follow-ups were doomed by partisan wrangling. San Francisco Federal Reserve President Mary Daly today called for stronger fiscal policy from Congress: “We aren’t out of the woods yet, so we need a longer bridge”. She also said that there is weakness in the jobs market that the unemployment rate is not capturing.
Spotlight on Hotels: The hotel sector has been hardest hit by the pandemic. Recent weeks have seen permanent closures of high-profile hotels such as, The Luxe on Rodeo Drive in Beverly Hills and the “Crossroads of the World” Hilton on Times Square. Experts indicate that without significant aid from Congress the wave of closures is just beginning. CMBS has been the preferred loan execution for hotels for many years with $85 billion in outstanding hotel loans. Statistics from Trepp, the leading CMBS analytics group, indicate unprecedented stress on the sector. Loans delinquency are at 23.4%, highest on record (December 2019 it was 1.3%). The volume of delinquent loans exceeds the highest level reached during the Great Recession by 53%. Over 35% of CMBS loans are on servicer “watchlist” with 24% in special servicing now. The hardest hit MSA’s are New York/Newark, Houston, Chicago, Dallas, LA, Atlanta. All these metros were major convention and business travel hubs. There are some bright spots in the industry as many desirable drive-to destinations are experiencing high occupancy. Travelers are getting comfortable with procedures such as contactless entry, intense cleaning procedures, etc. It is apparent that a return to “normal” levels of air travel and business meetings will be dependent on the widespread distribution of an effective vaccine. This is estimated to occur in mid-2021 at best, so Congress must act or the industry will see waves of foreclosures over the next several months. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners