In the latest sign of distress in the hotel market, the Westin Book Cadillac in downtown Detroit is now underwater on its commercial mortgage-backed securities debt totaling $77 million.
Trepp LLC, which tracks CMBS debt, says that the 453-room hotel’s appraised value plunged dramatically from $136 million at the end of last year to $74.6 million in September, slightly less than the outstanding balance on a pair of CMBS loans its owner took out earlier this year right around the time the COVID-19 pandemic was ripping its way through the U.S. — one for $45 million and another for $32 million.
The New York City-based firm says the debt is only paid through May.
An email was sent to John Ferchill, head of Cleveland-based Ferchill Group, which owns the hotel that it redeveloped in 2008 at a cost of $180 million.
The building opened in 1924 as the Book-Cadillac Hotel and had been vacant and in disrepair for more than two decades before the redevelopment, one of several high-profile projects that helped kick off a building rehab wave in the downtown core.
It’s one of the best known hotels in the region but it closed for much of the spring during the pandemic, which has crushed the hospitality industry.
The Townsend Hotel in downtown Birmingham is also behind on a $35 million loan.
In addition, some hotel construction projects have been delayed. Many industry observers say it may not recover to pre-pandemic levels until 2023 or 2024.
The most recent data from STR, a hotel-industry analytics firm with its North American headquarters in Tennessee, says that the region’s hotels have an occupancy rate of just 36.1 percent, a 42 percent drop year-over-year. Additionally, average daily rates fell to $72.28, a 28.6 percent drop year-over-year, while RevPAR — industry shorthand for revenue per available room, a key financial metric — dropped 58.6 percent to $26.11.
Yet all of those are improvements over the market lows in April. Occupancy was just 22.9 percent the week of April 4; the week of April 25, daily rates were $63.38 and RevPAR plunged to $14.88 the week of April 4.
Trepp says between January and April this year, revenue was $19.76 million awhile expenses were $21.78 million, creating a more than $2 million shortfall in just those months alone. More recent financial data for the hotel was not available.
But net operating income in the three previous years was $9.85 million (2019), $10.63 million (2018) and $11.11 million (2017), according to Trepp data.
Trepp says that the loans were underwritten with a 78 percent occupancy at the Westin Book Cadillac but it was only 43 percent occupied during the first four months of the year.
CWC Capital Asset Management LLC is the special servicer, according to Trepp. A special servicer tries to come up with a debt resolution. The loans could be modified or extended, or some other deal could be reached with the owner.
The two loans were originated in January with Citi Real Estate Funding Inc., according to Trepp.