Commentary
SEPTEMBER 15, 2020 College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns
Carson Applegate As colleges and universities grapple with the EXHIBIT 1 Vice President, NA CMBS effects of the Coronavirus Disease (COVID-19) 2019 Average Home-Game Attendance +1 312 332-9445 pandemic, already-struggling hotels in college Per Game [email protected] towns will likely face further performance declines with postponed college football Steven Jellinek games and/or severely restricted in-person Vice President, NA CMBS attendance at such games. Sixty-five different +1 312 244-7908 colleges across the United States make up the [email protected] Atlantic Coast Conference (ACC), the Big Ten 5 Conference (Big Ten), the Big 12 Conference (Big Jack Donovan 12), the Pacific-12 Conference (Pac-12), and the Senior Analyst, NA CMBS Southeastern Conference (SEC), which together +1 312 845-2278 comprise the Power Five Conferences (Power [email protected] 5). According to the National Collegiate Athletic Association (NCAA), 25.6 million fans attended Erin Stafford Power 5 home games in the fall of 2019. DBRS
Managing Director, NA CMBS ACC Big Ten Big 12 Pac-12 SEC Morningstar focused its research on hotels +1 312 244-3391 within the Power 5 areas because games in [email protected] these conferences generate significantly higher So rce C ational College Football tten ance average attendance than the other five athletic T e CC incl e t e erage Ho e a e tten ance or t e conferences in the NCAA Division 1 Football ni ersit o otre Da e Bowl Subdivision (FBS). In 2019, Power 5 home The Big 12, SEC, and ACC, including the University games drew an average of 58,488 attendees of Notre Dame (Notre Dame), plan to move ahead while American Athletic Conference—the with their seasons as usual, but several schools conference with the next-highest home-game plan to limit capacity at their stadiums, ban attendance—home games drew an average of tailgating, and/or bar spectators from attending 30,491 attendees. games. On August 18, 2020, the University of Alabama (an SEC school that averaged 101,117 Coronavirus-Related Contingencies and attendees per game in 2019) announced that its Implications for Surrounding Hotels 101,821-seat Bryant-Denny Stadium will operate Because of concerns for college athletes at approximately 20% capacity and that it would amid the pandemic, the Big Ten and Pac-12 not allow tailgating for the fall 2020 season. Duke conferences both cancelled their fall 2020 University (an ACC school that averaged 25,811 football seasons; however, there is some attendees per game last year) announced that speculation that these conferences may fall athletic events will be spectator-free and reconsider their decisions. In 2019, 9.8 million parking lots historically used by football fans will people attended Big Ten and Pac-12 home games be closed for the fall season. The ACC, Big 12, and and schools in these conferences averaged SEC accounted for 15.8 million, averaging 60,293 56,649 attendees per home game. attendees per home game.
1 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns Commentary
Power 5 schools acknowledge that there will be Power 5 Direct-Exposure Loans a decline in profit for the 2020 football season DBRS Morningstar identified 133 loans secured and the hotel sector in these college towns will only by hotel properties within a five-mile radius likely face unprecedented revenue deterioration. of Power 5 football stadiums (Power 5 Direct- According to a 2019 GateHouse Media Exposure Loans). These loans total $3.98 billion Tertiary and rural markets investigation, 93 public universities collectively and are secured by 141 properties located across spent $4.91 million on home-game hotel rooms in 28 states and 51 cities. Exposure to the Big Ten are generally less densely 2018, which equated to a median of approximately and Pac-12, which have postponed their fall populated areas with $44,000 per team. Major college football teams 2020 football seasons, represents $1.69 billion justified the expense because hotels offer better in CMBS exposure. Comparatively, the combined economies that depend (1) sleep schedules for players, (2) structured team balance of hotel loans near Big 12, ACC, and SEC more heavily on revenue meals, (3) game film review, and (4) walk-through football stadiums is $2.29 billion. from college football practices. Reduced or no attendees associated with the cancelation and/or postponement of EXHIBIT 3 compared with loans football games will likely have a negative effect on Direct-Exposure Senior Loan Balance by secured by lodging lodging properties near college stadiums. Conference properties in suburban or Commercial Mortgage-Backed Security (CMBS) urban markets. Exposure DBRS Morningstar identified 177 CMBS loans with an outstanding balance of $16.96 billion secured by 291 hotels within five miles of a Power 5 football stadium. Fourteen of the loans
(totaling $7.26 billion or 42.8% of total exposure) 5 are secured by portfolios with at least two hotel properties in different Power 5 college towns as well as properties outside Power 5 college towns CC Big Big Ten Pac S C (Large Diversified Hotel Portfolio Loans). Of these 163 loans (totaling $9.70 billion or 57.2% of total The Power 5 Direct-Exposure Loans are generally exposure), 30 loans totaling $5.72 billion are concentrated in suburban markets. The ACC, Big secured by hotel properties that are not in Power Ten, and PAC-12 have a weighted-average (WA) 5 college towns. We excluded these 30 loans and DBRS Morningstar Market Rank of 6 while the the 14 Large Diversified Hotel Portfolio Loans from Big 12 and SEC have a WA DBRS Morningstar our analysis to determine a set of loans with the Market Rank of 5. We expect the loans backed highest exposure to the Power 5 conferences. by collateral in tertiary (DBRS Morningstar Rank of 2) and rural (DBRS Morningstar Market Rank EXHIBIT 2 of 1) markets, which collectively represent 7.3% Total Senior Loan Balance Power 5 of the total Power 5 Direct-Exposure balance, Exposure to experience the harshest performance issues because of the postponement and restrictions surrounding the fall 2020 football season.
Tertiary and rural markets are generally less densely populated areas with economies that depend more heavily on revenue from college football compared with loans secured by lodging properties in suburban or urban markets.
5 5 Only two loans—HGI Starkville and Starkville Hospitality Portfolio—are secured by collateral CC Big Big Ten Pac with a DBRS Morningstar Rank of 1, which S C M lti le Con erence os re indicates rural locations. Together, these loans only account for 0.5% of the total Power 5 Direct-Exposure Loan balance and are secured by collateral in Starkville, Mississippi, which
2 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns Commentary
EXHIBIT 4 ACC Direct-Exposure Loans Direct-Exposure Loans by DBRS Morningstar Market Rank The ACC is among the conferences that hope to carry out a regular fall 2020 football season, and
began playing games on September 12, 2020. C Notre Dame’s football team was not part of the ACC for 2019, but will be for the 2020 season. 5 The ACC conference, including Notre Dame, had 5.0 million attendees at home games in 2019 CC C with an average of 50,038 per game. Excluding Notre Dame, total 2019 attendance drops to 4.4 million attendees with an average of 48,041 per en game. DBRS Morningstar identified nine loans,
representing 21.3% of the ACC Direct-Exposure Loan balance, that were either delinquent or specially serviced and 11 loans, representing 35.5% of the balance, that were performing but on the servicer’s watchlist. The ACC had the highest portion of performing loans at 42.9%.
is home to Mississippi State University. Fifty The ACC’s largest loan within the Power 5 Direct- loans are secured by collateral with a DBRS Exposure Loans is the Hyatt Regency Atlanta Morningstar Market Rank of 2, which indicates at $243.7 million. The 1,260-key, full-service tertiary locations. These loans only account for hotel was recently securitized in BX 2019-ATL 6.9% of the of the total Power 5 Direct-Exposure (not rated by DBRS Morningstar), a single-asset Loan balance. single-borrower (SASB) transaction. The sponsor for the loan, an affiliate of the Blackstone Group The largest loan secured by tertiary or rural Inc., reached out to the special servicer in July collateral is the Marriott Morgantown 2020 for coronavirus relief, but the loan remains Waterfront at $23.0 million, securitized in current. The property benefits from its proximity the DBRS Morningstar-rated BMARK 2019- to the Georgia Institute of Technology’s (Georgia B15 (rated by DBRS Morningstar). This loan, Tech) Bobby Dodd Stadium, which averaged backed by a 207-key hotel near West Virginia 44,599 attendees per home game in 2019. University’s Mountaineer Field at Milan Puskar Georgia Tech plans to limit attendance at Bobby Stadium, is currently on the servicer’s watchlist. Dodd Stadium to 20.0% of capacity, or about The sponsors for the loan were granted a 11,000 fans per game, for the fall 2020 football coronavirus-related forbearance from June 2020 season. The property also benefits from its prime to September 2020, and the sponsor is scheduled location in Downtown Atlanta and franchise to repay deferred debt service over 12 equal affiliation with Hyatt Hotels Corporation, which monthly installments in addition to the required should incentivize the borrower to stay current monthly payments.
EXHIBIT 5 The majority of the Power 5 Direct-Exposure Loans were already underperforming prior to the ACC Direct-Exposure Loan Status start of the 2020 college football season because of the pandemic. As of September 4, 2020, DBRS Morningstar identified 40 loans, representing 36.9% of the total Power 5 Direct-Exposure Loan balance, that were either delinquent or specially serviced and 47 loans, representing 32.9% of the total balance, were performing but on the servicer’s watchlist. 5 5
Per or ing S eciall Ser ice Delin ent Per or ing S eciall Ser ice atc liste Delin ent Per or ing atc liste Delin ent
3 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns Commentary
on loan payments despite the likely decline in rejected. The loan, which is current, remains performance caused by restricted capacity at in special servicing. While it is now open, the Bobby Dodd Stadium and travel concerns amid property and the overall Austin lodging market the pandemic. will continue to face near-term challenges. The University of Texas at Austin (UT Austin) plans to For more information on ACC CMBS Lodging limit capacity to approximately 18% of capacity, Exposure, click here. or 18,000 fans, for its first home game at Darrell K Royal – Texas Memorial Stadium. UT Austin Big 12 Direct-Exposure Loans initially proposed a cap of 25,000, but decided The Big 12 plans to follow through on its 2020 to further limit capacity because of concerns football season, and began playing games on about the spread of the coronavirus. UT Austin September 12, 2020. The Big 12 had 3.6 million averaged 96,306 home-game attendees last year, attendees at home games in 2019, averaging which was the seventh-highest figure among all 56,805 attendees per game. DBRS Morningstar FBS teams in 2019. Lodging properties in Austin identified nine loans, representing 72.2% of were already facing performance declines with the Big 12 Direct-Exposure Loan balance, that the cancelation of South by Southwest and were either delinquent or specially serviced and Austin City Limits Music Festival in 2020, and another nine loans, representing 20.1% of the will likely continue to do so as the market slowly total balance, that were performing but on the rebounds. servicer’s watchlist. The percentage of loans that were either delinquent or specially serviced For more information on Big 12 CMBS Lodging (72.2%) represents the highest concentration Exposure, click here. and the percentage of performing loans (7.6%) represents the lowest concentration among the Big Ten Direct-Exposure Loans other four conferences in the Power 5. The Big Ten did not plan to have a 2020 college football season after holding a vote in EXHIBIT 6 August 2020; however, the Big Ten's Council Big 12 Direct-Exposure Loan Status of Presidents and Chancellors will vote on a measure the week of September 14, 2020, which
5 could permit college football games to begin in October 2020. The Big Ten had a total of 6.2 million attendees at home games in 2019, averaging 65,048 fans per game. At $469.3 million, the Big Ten has the lowest exposure compared with the other four conferences. DBRS Morningstar identified six loans, representing 60.4% of the Big Ten Direct-Exposure Loan balance, that were either delinquent or specially Per or ing S eciall Ser ice Delin ent Per or ing S eciall Ser ice atc liste Delin ent Per or ing atc liste Delin ent EXHIBIT 7 Big Ten Direct-Exposure Loan Status The majority of Big 12 exposure is in Austin,
Texas, which represents nearly 85% of the Big 5 12 Direct-Exposure Loan balance. The largest 5 loan with Big 12 exposure in the Power 5
Direct-Exposure Loans is the Fairmont Austin at 5 $300.0 million. The 1,048-key, full-service hotel is the only asset in AFHT 2019-FAIR (not rated by DBRS Morningstar). After the property closed from March 2020 through May 2020 because 5 of the pandemic, the loan transferred to special Per or ing S eciall Ser ice Delin ent servicing in May 2020 and was brought current Per or ing S eciall Ser ice atc liste Delin ent in July 2020 after a forbearance proposal was Per or ing atc liste Delin ent
4 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns Commentary
serviced and another six loans, representing the lowest percentage of underperforming loans EXHIBIT 9 24.0% of the balance, that were performing but that were either delinquent or specially serviced SEC Direct-Exposure Loan Status on the servicer’s watchlist. loans at 13.9% among the Power 5. Sixteen loans, representing 47.0% of the total Pac-12 The Big Ten’s largest loan with CMBS exposure is Direct-Exposure Loan balance, are current but on the Hilton Minneapolis at $180.0 million. The 821- the servicer’s watchlist. Seattle represents the key full-service hotel is the sole asset in JPMCC highest exposure with 11 loans or 39.5% of the 5 2018-MINN (not rated by DBRS Morningstar). balance. The loan, which is delinquent, transferred to special servicing in June 2020. The hotel is a The Pac-12’s largest loan with CMBS exposure 5 10-minute drive from the University of Minnesota, is the Grand Hyatt Seattle loan at $133.0 million, Twin Cities’ (Minnesota ) TCF Bank Stadium. split among COMM 2017-COR2, COMM 2018- 5 Minnesota averaged 46,190 attendees per home COR3, and JPMCC 2019-COR4 (none of which Per or ing S eciall Ser ice Delin ent game for the 2019 season and benefits from its are rated by DBRS Morningstar). The borrowers Per or ing S eciall Ser ice atc liste Delin ent Per or ing atc liste Delin ent location in Downtown Minneapolis as well as were granted coronavirus forbearance from a skyway that connects the university to the May 2020 to August 2020, and the borrowers Minneapolis Convention Center. Similar to other are scheduled to repay the forborne amounts by hotels in the area, the pandemic and the civil August 2021. The loan is current and has been The largest SEC loan with CMBS exposure is unrest following the shooting of George Floyd returned to the master servicer. The property is the Sheraton Grand Nashville Downtown at have presented unprecedented performance a 457-key, full-service hotel that is fewer than $133.0 million with pari passu pieces in CSAIL issues for the Downtown Minneapolis lodging four miles from the University of Washington’s 2018-C14, WFCM 2018-C48, MSC 2018-H4, and market. According to the servicer, the loan is (Washington) Husky Stadium. Washington MSC 2019-L2 (rated by DBRS Morningstar). expected to be resolved or foreclosed on by the averaged 68,238 home-game attendees in 2019, DBRS Morningstar rates one of the conduit end of December 2020. which was the highest among all Pac-12 teams transactions, MSC 2019-L2, containing a pari in 2019. The sponsor will likely be incentivized to passu piece of the Sheraton Grand Nashville For more information on Big Ten CMBS Lodging keep the loan current and continue to work with Downtown. The loan, which is delinquent, Exposure, click here. the servicer if more issues arise as the collateral was transferred to special serving in June is still highly valued because of its location in 2020. The 482-key, full-service hotel is fewer Pac-12 Direct-Exposure Loans the Seattle central business district. Seattle is a than three miles from Vanderbilt Stadium at The Pac-12 does not plan to go through with its densely populated city with a diverse economy. Vanderbilt University (Vanderbilt). Vanderbilt 2020 football season, despite agreeing to enter The cancelation of the Pac-12 football season will only averaged 26,288 home-game attendees into a rapid testing and research initiative with likely be less burdensome on Seattle’s lodging for the 2019 season, which was the lowest in sector than on those in suburban, tertiary, and the SEC and the second lowest in the Power 5 EXHIBIT 8 rural Power 5 college towns. in 2019. Vanderbilt is currently the only school Pac-12 Direct-Exposure Loan Status in the SEC that plans not to permit fans into its For more information on Pac-12 CMBS Lodging stadium for the 2020 football season. Nashville Exposure, click here. lodging has benefited from the rise of tourism in the last real estate cycle, but the lodging sector SEC Direct-Exposure Loans has not historically depended on college football The SEC currently plans to play football this fall, tourism or Vanderbilt home games. While a loan and the first games are scheduled for September modification may be in the works, the borrower 26, 2020. In 2019, the SEC had the highest will likely be incentivized to work with the number of home-game attendees and average servicer as the property’s flag affiliation with home-game attendance among the Power 5 at Sheraton Hotels and Resorts and the property’s 7.2 million and 72,802 per game, respectively. prime location in Downtown Nashville bring Per or ing S eciall Ser ice Delin ent DBRS Morningstar identified nine loans, value to the property. Per or ing S eciall Ser ice atc liste Delin ent Per or ing atc liste Delin ent representing 42.9% of the SEC Direct-Exposure Loan balance, that were either delinquent For more information on SEC CMBS Lodging Quidel Corporation by the end of September or specially serviced and another five loans, Exposure, click here. 2020. In 2019, Pac-12 had the lowest number of representing 25.1% of the total balance, that home-game attendees and average home-game were performing but on the servicer’s watchlist. attendance in the Power 5 at 3.5 million and The majority of SEC exposure is in Nashville, 46,176 per game, respectively. Pac-12 has the Tennessee, which represents 57.7% of the SEC highest CMBS exposure at $1.2 billion as well as Direct-Exposure Loan balance.
5 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns Commentary
DBRS Morningstar Viewpoint poses an additional threat for the hotel sector in Three of the Power 5 conferences (ACC, Big college towns that currently plan to host home 12, and SEC) plan to go ahead with their football games in fall 2020. football seasons in 2020, but there is ongoing concern that the conferences that have already In our analysis, we discovered that the majority of cancelled their seasons (Big Ten and Pac-12) the Power 5 Direct-Exposure Loans were already may put pressure on the others to follow suit. facing performance issues prior to the start of Some hotels are working with universities the fall 2020 college football season because to house students during the coronavirus of the pandemic as well as the fact that they pandemic by turning unused rooms into are generally secured by properties in suburban temporary student housing—a viable revenue markets. We believe that lodging properties in stream. Power 5 schools such as the University SEC and Big Ten college towns will likely face of Pittsburgh, the University of North Carolina steeper performance declines during the fall 2020 at Chapel Hill, and the University of Tennessee football season because of their historically high are using housing block agreements at local home-game attendance figures and dependence hotels to reduce density in campus housing. In on college football tourism. We believe that loans its surveillance of rated transactions, DBRS secured by collateral in areas that are not as Morningstar observed that the limited-service reliant on college football will likely retain higher hotel sector has been rebounding faster than values, even with loan modifications. the full-service hotel sector, primarily because of the leisure travel demand and drive-to On March 27, 2020, DBRS Morningstar placed destination status of most locations. all relevant North American SASB ratings Under Review with Negative Implications as a result There remain concerns that delaying the 2020 of the coronavirus’ negative impact on lodging college football season beyond the fall to the properties. For more information on this rating winter of 2020 or spring of 2021 may delay action, please see the press releases here and the start of the fall 2021 season. In addition, here. For more information on hotel exposure for schools with in-person classes and on-campus the Power 5, portfolios are available on the DBRS housing will likely continue to face the threat Viewpoint platform. of coronavirus outbreaks. The uncertainty surrounding how school administrators, Note: All figures are in U.S. dollars unless conference officials, and local governments otherwise noted. will respond to future cases of the coronavirus
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7 DBRS Morningstar College Football Cancellations Hike Risk on Hotel Loans in Power 5 College Towns