A weekend topic starting with the Los Angeles Times. "The Luxe Rodeo Drive is the first high-end hotel in the Los Angeles area to go out of business because of the pandemic, and industry experts point to an unusually high loan delinquency rate among hotel borrowers as a sign that more closures are likely to follow. 'We know there is a tsunami outside. We know it’s going to hit the beach. We just don’t know when,' said Donald Wise, a commercial real estate expert."

"High-end hotels have also closed in other parts of the country, including the 44-story Hilton Times Square hotel in New York City, which went out of business this month. Ashford Hospitality recently turned over the keys to its newly purchased Embassy Suites in Midtown Manhattan to its lender after the real estate investment trust fell behind on debt payments. The owner of Chicago’s Palmer House Hilton hotel was sued by Wells Fargo last month, accused of defaulting on a $333.2-million loan."

"'We anticipate many hotels won’t survive,' said Heather Rozman, executive director of the Hotel Assn. of Los Angeles. 'Industry data shows 1 in 4 properties already are struggling to pay mortgages, risking foreclosure.'"

"Nationwide, it’s not clear how many hotels are behind on their loan payments. But figures are available on hotel loans that have been bundled and sold to investors as commercial mortgage-backed securities. Payments on 16.77% of those loans are more than 30 days late, according to Fitch Ratings — up dramatically from less than 2% before the industry began feeling the pandemic’s financial effects."

"New York has over the last few years experienced a surge in new hotel construction to serve a boom in international visitors and many of the hotels that close due to the pandemic will likely convert to residential properties or offices because of the glut of hotels, said Alan X. Reay, president of Atlas Hospitality Group. In Southern California, it is unclear what will become of shuttered hotels."

The San Francisco Chronicle. "A large number of U.S. hotels temporarily closed their doors as bookings dried up last spring due to the coronavirus pandemic. And as fall approaches, it looks like a significant number of them might not be able to reopen as expected even if business starts to pick up to a healthy level again. Although big banks and other lenders often allowed some flexibility for strapped hotels to make their mortgage payments during the pandemic, their patience is running low and foreclosure is looming for some major urban properties."

"New York City, which has seen a boom in new hotel openings in the past few years, is now seeing a boom in permanent closings. Take, for instance, the Omni Berkshire Place, a classic business travelers’ hotel at Madison Ave. and 52nd Street. Go to its website and you’ll see a notice that the property is 'permanently closed.'"

"The W New York-Downtown in the financial district reportedly plans to shut down for good in October. And more permanent closings are likely. According to a report on CNBC, 34 percent of the hotels in New York City are delinquent on their debts. The report quotes an executive at a leading hospitality investment bank as saying the closures thus far are merely 'the tip of the iceberg,' with more likely to follow – especially in the Times Square/Midtown area. The city was already becoming overbuilt before the pandemic hit."

"And it’s not just New York. The CNBC report notes that hotel delinquencies 'are rising significantly'” in cities like Houston, Los Angeles and Chicago. Speaking of Chicago, one of that city’s most iconic hotels – the 1,600-room Palmer House, operated by Hilton in the heart of The Loop – was sued last month by lenders for defaulting on a mortgage to the tune of more than $330 million."

"Last month, the American Hotel & Lodging Association (AHLA) and hundreds of industry executives sent a letter to Congress asking for urgent relief in the face of unprecedented financial difficulties. 'With record low travel demand, thousands of hotels can’t afford to pay their commercial mortgages and are facing foreclosure with the harsh reality of having to close their doors permanently,' said AHLA CEO Chip Rogers. 'Tens of thousands of hotel employees will lose their jobs and small business industries that depend on these hotels to drive local tourism and economic activity will likely face a similar fate.'"

The Wall Street Journal. "The recent sale of the Royalton hotel in midtown Manhattan marks the end of an era. That’s how its new owner, Tyler Morse, sees it, at least. The Royalton was one of the country’s original boutique hotels, properties that put an emphasis on style and design and turned lobbies into social hubs. Located near Times Square, the Royalton helped launch a mania for this kind of lodging, starting in the 1980s."

"The Royalton’s value has eroded over the years, which now says as much about the challenging lodging environment as it does about the property’s luster. Hotel owner and operator MCR Investors, paid nearly $41 million for the property. The recent sale price was well below the $55 million the previous owners paid for the property in 2017, according to data company Real Capital Analytics. The hotel appraised at $69 million in 2005, RCA said."

"New York hotels in general have struggled mightily since the pandemic upended business travel, cut off most foreign tourism and closed down many city attractions. New York City’s average daily room rates for the week ended Sept. 5 were down 41% from the year-earlier period, according to data firm STR. The city’s occupancy levels stood at 39%, which was down 56% year over year and below the recent peak of 50% in early June, STR said."

From Bloomberg. "Bond investors who wagered on a group of malls owned by Barry Sternlicht’s Starwood Capital Group are starting to take losses after the Covid-19 pandemic shuttered stores and wiped out emergency cash reserves that had been keeping interest payments flowing. The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan. It’s cutting interest payouts to investors for a second time, after a reserve account dried up in June and a sharply lower property valuation led to the servicer holding back some funds."

"The bond’s performance shows how rapidly the pandemic is deepening losses in a sector that was already getting crushed by online shopping. Even the part of the bond deal that was once rated AAA -- meaning bond raters saw virtually no risk of taking losses just two months ago -- have now been cut deep into junk territory."

From Market Watch. "Minneapolis Fed President Neel Kashkari on Friday decried the U.S. financial system as 'absurd' because it has needed a central bank bailout twice in less than 20 years. 'How can it possibly be this fragile?' Kashkari asked, in a speech to the Council of Institutional Investors. In March when it became clear that the coronavirus pandemic would damage the U.S. economy, investors and institutions attempted to move to relatively safe assets, causing the U.S. funding markets to buckle."

"The Fed moved in with trillions of dollars to support markets and, in the process, removed long-tail downside risks from aggressive trades held by firms. 'The funding markets that almost collapsed in March raise important and complex policy questions,' Kashkari said. It is not as simple as addressing the risks of too-big-to-fail banks, where the clear and straightforward solution is to force them to fund themselves with more equity, he said."

"'The solution of fragile funding markets is less obvious but also important,' Kashkari said. 'Fundamentally, I wonder why we allow firms, financial or otherwise, to fund themselves overnight?' What societal value is there in repo markets that prove so fragile when risks emerge, he said."

"Even former top Fed officials like Ben Bernanke and Janet Yellen have said the Fed needs to get its arms around why financial markets broke down in March. Supporters of the financial system have argued that banks and shadow banks were not the cause of the crisis as they had been in 2008. But Kashkari seemed to have little patience with large banks that benefitted from government aid. 'You might not realize it, but the banks got a lot of help,' Kashkari said."

"He noted banks were key beneficiaries of the COVID-19 economic stimulus measures passed by Congress this year. Without these one-time checks, more Americans would not have been able to make their credit card payments, he noted."