Starwood European Real Estate Finance has said that it is likely many loans of its loans will see increased credit risk and possible defaults on loan payments.
The firm had loans totalling £206.1m in the UK and £238.2m in Europe at the end of March. Hospitality accounted for 34.1% of its investments.
Its largest single asset exposure is to a hotel in Dublin, representing 28.1%. However, the hotel has been granted a licence by Ireland’s public healthcare provider, which allows it to use the property to provide healthcare, accommodation and other services to the Irish public during the pandemic.
Starwood said it considered that the award of the licence had has significantly de-risked its hospitality exposure.
Starwood added: “Looking forward, there are a number of uncertainties as to how the financing market will look as and when the market reopens.
“On the credit side, many lenders will look to the transaction market to provide some stability over a number of transactions and a period of time before their terms will be extended back to the full levels allowable under their mandates. As such, the initial loans made by banks will likely have five to 10% lower LTVs than the previous maximums they were offering. There is uncertainty on the pricing side with CMBS new issuance markets closed and banks still not clear as to how their term financing costs will stabilise over the coming months.
“We anticipate that lenders will also experience a lower number of repayments due to fewer property sales and refinancings over the coming months, which will reduce the natural churn of assets on their books and the need to replace repaying loans with new originations to maintain portfolio size.”
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