The lodging industry is conservatively leveraged due to stringent loan underwriting standards initiated in the early 1990s, strong earnings growth, and the advent of low-leverage hotel real estate investment trusts, according to a new study conducted by the American Hotel & Motel Association (AH&MA) and PriceWaterhouseCoopers. The Lodging Industry Mortgage Report—which reviews the industry's debt service, the life cycle debt requirements, and permanent mortgage providers—was commissioned to provide the first comprehensive picture of the hospitality industry's use of financial leverage.

The study also reveals that industry mortgage default rates have fallen steeply since 1992 and remained at historically low levels since 1996. Although defaults have inched up slightly over the past two years, they have remained under two percent and are generally in line with other real estate products since 1995. Other findings indicate that interest coverage for lodging properties has improved markedly since 1987 and is expected to stabilize over the next two years, financing through conduits has become the dominant form of lending for hotels, and hotels have not been as risky as other property types since the onset of the Commercial Mortgage-Backed Securities market.

"The many findings contained in the report, particularly the low default rate of properties, should be of great interest to the industry and funding organizations," said Bob Slater, AH&MA chairman.

A sour note for the lodging industry was sounded in a separate, forward-looking PriceWaterhouseCoopers report that warned that several large U.S. markets, Atlanta, Boston, Chicago, New Orleans, and Washington, D.C., might be in for some oversupply problems, if all the currently slated new hotels are built on schedule over the next year.