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Looking Under the Hood: The Catalysts of Hotel Credit Spreads

Executive Summary: The interest-rate spread (or credit spread) between hotel loans and office building loans is an effective predictor of the relative change in delinquency for hotel loans, as explained in a prior report, "A New Canary for Hotel Mortgage Market Distress" (published by the CHR). In this companion report, we take a look under the loan spread hood to see what are the catalysts that drive that credit spread (which is also known as...

Crocker LiuAndrey UkhovJan deRoos
By Crocker Liu, Andrey Ukhov, and Jan deRoos
United States

Executive Summary: The interest-rate spread (or credit spread) between hotel loans and office building loans is an effective predictor of the relative change in delinquency for hotel loans, as explained in a prior report, "A New Canary for Hotel Mortgage Market Distress" (published by the CHR). In this companion report, we take a look under the loan spread hood to see what are the catalysts that drive that credit spread (which is also known as the relative risk premium or risk premium differential). Using a Vector Autoregression (VAR) statistical framework, we find that hotel credit spreads (against office loans) widen if the general economy worsens, anticipated corporate profitability declines, capital availability decreases, hotel revenues decrease, or relative risk increases. The variables that are statistically significant capture risk and return information embedded in the risk premium differential (credit spread), and it is the decline in these factors that makes our canary stop singing (as a warning of impending trouble with hotel loans).

Download Report at Looking Under the Hood: The Catalysts of Hotel Credit Spreads

Development USA & Canada United States
Crocker Liu
Crocker Liu
Robert A. Beck Professor of Hospitality Financial Management, Cornell

Crocker H. Liu is the Robert A. Beck Professor of Hospitality Financial Management and a professor of real estate at the Cornell’s Nolan School of Hotel Administration. He previously taught at New York University's Stern School of Business (1988-2006), where he was the associate director of real estate, and more recently at Arizona State University's W.P.

Andrey Ukhov
Andrey Ukhov
Assistant professor of finance in the Cornell School of Hotel Administration, Cornell

Andrey D. Ukhov is an assistant professor of finance in the School of Hotel Administration. Professor Ukhov is an expert on a wide range of investments, including preferred stocks, warrants, derivative securities, and convertibles.

Jan deRoos
Jan deRoos
Associate Professor and HVS Professor of Hotel Finance and Real Estate, CHR

Jan A. deRoos is an associate professor at the School of Hotel Administration, where he has taught since 1988. He has devoted his career to hospitality real estate; with a focus on the valuation, financing, development, and operation of lodging, timeshare, and restaurant assets. He holds BS, MS, and PhD degrees from Cornell University, all with majors in Hotel Administration.

CHR
School-University

The Cornell Institute for Hospitality Labor and Employment Relations was established in 2013 as a platform for students, employers, employees, unions, and their advocates involved in the hospitality industry. The institute's mission is to support educational programs, sponsor and disseminate research, and hold conferences and roundtables dedicated to modernizing labor and employment relations, analyzing labor and employment law, and improving...

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