Understanding the commercial mortgage-backed securities market in the hospitality sector

Abstract

Before the advent of the commercial mortgage-backed securities (CMBS) market, long-term permanent real estate lending had been traditionally limited to commercial banks, thrifts and insurance companies that provided new mortgage loan originations to local markets. The CMBS market was born from the lending crunch that developed in the 1980s, as some traditional lenders backed away from real estate lending. Financial intermediaries filled this gap in the market by constructing new forms of real estate debt securities which appealed to a greater range of investors. As a result, since the inception of the CMBS market there has been a broader range of investors in real estate securities, including money managers, hedge funds, pension funds, real estate funds and mutual funds. The objective of this paper is to provide a general overview of the CMBS securitisation process as it relates to hotels and discuss the advantages and disadvantages of the CMBS market, challenges confronting the CMBS hospitality sector and the servicing of CMBS.