Ares US Real Estate Opportunity Fund III
Hotel Experiencing Short-Term Distress With Longer-Term Recovery
Pandemic lockdowns and travel restrictions have resulted in an unprecedented demand shock, with a
gradual recovery forecasted to take as long as three to four years
Prolonged Recovery of Hotel Profits and Valuations
Prices as % of 2019 Values by Impact Level
ā
120%
100%
80%
60%
40%
20%
0%
2019
2020F 2021F
Least Impact
Greatest Impact
2022F 2023F
Source: Green Street, HVS June 2020 Outlook
Forecast
2024F 2025F
Typical Impact
EBITDA Margin
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
After sudden and precipitous declines, hotel valuations and EBITDA
margins are not forecasted to recover prior to 2023-2024
EBITDA Margin
% of CMBS Loans Outstanding in Special Servicing
22228ENND
26
24
20
31
18
16
14
12
Aug-19
CMBS Special Servicing Rates by Property Type
Overall
Sep-19
Oct-19
Nov-19
Special Servicing
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
For illustrative purposes only. Forecasts are inherently limited and should not be relied upon as indicators of actual or future results. Forward looking statements
are not reliable indicators of future events and no guarantee or assurance is given that such activities will occur as expected or at all
Confidential - Not for Publication or Distribution
******
Jul-20
Source: Trepp as of September 2020
Dramatic increase in special servicing indicates a near-term wave of
foreclosures, distressed note sales and bankruptcy/REO auctions
Industrial Lodging Multifamily Office Retail
The severe impact of COVID-19 on hotel operations is expected to require a prolonged recovery to profitability and prior valuations
Given legacy portfolio issues and a lack of current cash flow, traditional sources of financing including CMBS, banks, and insurance companies are
largely closed for hotel borrowers
Aug-20
Given its deep sector experience, we believe Ares is poised to capitalize on this capital markets dislocation in the hospitality sector by offering
structured, downside-protected liquidity solutions to cash-strapped hotel borrowers
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