The amount of loans backed by hotels and packaged into commercial mortgage-backed securities, or CMBS, typically moves with the economic cycle. In the recessions of 2002 and 2009, issuance of hotel CMBS loans declined to almost zero, but in 2020 more than $3.5 billion in CMBS loans were made. In prior recessions, all hotel types saw their business decline, but during the pandemic, economy hotels, resorts and hotels with leisure appeal performed much better. And lenders took note.
In 2021, the CMBS volume increased to about half of what it was in 2019, a remarkable turnaround. After the Great Recession, it took five years for hotel CMBS lending to recover half the loan volume achieved in 2007. The recovery we see in 2021 speaks to multiple positive factors influencing debt markets. Capital is easily accessible and many entities that used to be focused on a single approach to deploy capital are now investing up and down the capital stack. At the same time, the performance of hotel properties has recovered, in some instances quite dramatically, giving investors and lenders confidence in the long-run viability of the industry as a whole and in specific projects.
Overall, hotel CMBS lending volume appears healthy and is expected to materially increase after the low volumes over the past two years. The hotel industry has shown remarkable resilience, and lenders are willing to take a bet on the return of healthy cash flows and the associated decreasing interest payment risk.