As COVID-19 shuts malls and hotels, their owners fall behind on loans, setting the stage for a changed landscape

New York’s historic Roosevelt Hotel shut down last month, the latest casualty of the coronavirus pandemic that has upended the city’s tourism and retail markets.

Many more hotels and retail properties in the nation’s biggest cities are struggling.

In the New York area, the owners of 43 hotel loans were delinquent on loans backed by $1.5 billion in bonds as of Oct. 31, according to Trepp LLC, a research firm that tracks commercial real estate markets.

Another 30 owners of shopping malls and storefronts in the Greater Chicago area were facing similar financial problems, with loans backed by more than $630 million in bonds.

And that’s two sets of borrowers in two of the hardest-hit areas of the economy in two of the biggest cities in the United States.

Coast to coast, more than a thousand hotel and retail borrowers have defaulted on more than $35 billion in loans since the coronavirus pandemic stalled travel and tourism and made visits to shopping malls unappealing, especially with easy online alternatives for consumers.

As it stands now, nearly 20% of all hotel loans and slightly more than 14% of all retail loans originated by commercial real estate lenders and packaged into securities that are sold to investors are now delinquent.

That’s fewer delinquencies than at the peak of the crisis in June. But problem loans are still at disturbingly high levels compared with previous downturns.

“The pandemic has had the most immediate and dramatic impact on hotels and motels, as we’ve taken a vacation from vacations,”  said Jamie Woodwell, vice president of commercial real estate research at the Mortgage Bankers Association. “It’s also put a lot of stress on retail, where the conversion to online purchasing that should have happened over five years has accelerated and is now taking place over a matter of months.”