NYC Hotel Loans Defaulting At Alarming Rate As Room-Rates Plunge, Tourism Tumbles

More and more New York City hotels are defaulting on their mortgages, signaling an alarming trend in the industry as "challenging market fundamentals" and new supply act as headwinds for the industry.

This has resulted in room rates declining and sites like Airbnb gaining traction in the market, according to The Real Deal.

The main metric to watch is the average daily room rate, which has dropped in New York City to its lowest point since at least 2013: $255.16, according to STR. More than 22,000 new hotel rooms remain in the pipeline, as well, which will further add to the supply glut and likely push room rates even lower.

As a result, loans like a $260 million loan on the Row Hotel near Times Square have been in default. In the case of the Row Hotel, it's lender is looking to offload the loan on the secondary market for as little as $50 million. Meanwhile, the hotel itself has been on the market since last year, but has little interest from buyers.

Colony Credit, the lender, says there has been a “significant deterioration” in the hotel market and that feedback during the sales process has led them to mark down the value of the loan.

In 2019, Heritage Equity Partners defaulted on a $68 million loan for the Williamsburg Hotel. That property is now in the process of heading toward receivership. Lenders to Maefield Development's hotel at 20 Times Square have also sought to foreclose on $650 million in loans that were made for the project. East West Bank has also moved to foreclose on loans secured by the Selina Chelsea.

The Blakely Hotel was shut down altogether last month by its owner, Richard Born, who blamed challenges facing the industry.