The Case for Condo Hotel 2007

Lenders have learned a new word called "risk" in the last few months. Over the last 5 years, mortgage lenders have deviated from basic lending philosophy to create more risky and exotic mortgage products in an effort to expand the volume of mortgages they wrote. Home mortgages offering 'no money down', 'no payments for 12 months', 'bad credit & no docs ok' became commonplace by the fall of 2006. So it should have been no surprise when delinquency and default rates on these home mortgages spiked to over the traditional 1%. Lenders are just beginning to calculate how poor their judgment had become for credit risk.

In search of higher yield, lenders also embraced speculative condominium buyers, by offering zero down investor loans, this encourage the no infamous 'flippers' and distorted properties values and expectations. One area of lender sanity was the condo hotel mortgage business. By spring of 2007, the mass of condo hotel inventory had just begun to close (this fall will see more units close than in the past 2 years). Condo hotel mortgages were never really understood by most lenders, because few lenders had ever really closed one. Somewhere between a commercial loan to a hotel room and a residential second home loan, condo hotel mortgages are unique.