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.

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Market participants are reporting that landlords have had to offer more to attract tenants, including paying brokers’ fees on their behalf or waiving a month or two of rent. However, evidence indicates that concessions are not achieving the result of steady rentals and that rental rates will begin to fall.

“In many parts of the city rents will fall,” said Grant Long senior economist at the real estate listing site StreetEasy. “There’s a lot of new rental housing, and landlords are having to compete against each other and offer concessions, and inevitably cut the headline rents that they offer to folks. … And after a long period of increases that lasted over seven years, people are largely at the limit of what they’re willing to pay.”

But Jonathan Miller, president of the Miller Samuel appraisal firm, noted most of the new developments skew higher end, which means the benefits of increased competition are not as likely to trickle down to less-expensive units. “With a growing population and job growth, there’s much more price pressure on the lower half of the market,” Miller said.

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