In days of yore, such as the stock market heydays of the 1990s, Jolly St. Nick gave investors across almost all industries a special gift of holiday cheer. The "Santa Claus effect" has seen real estate and other equities rise a couple of percentage points each December almost every year during the past decade, as investors and traders feel the afterglow of eggnog and caroling.

The fat man in the red suit has been trying his darndest to improve matters on The Street this December. But those stubborn fundamentals and facts keep getting in his way. Lousy earnings statements and increased debt delinquencies are playing havoc with formerly profitable firms.

But the news for real estate investment trusts -- REITs -- has been good for 2001, despite tough times in the lodging sector.

According to the National Association of Real Estate Investment Trusts (NAREIT), as of December 27th the year-to-date return for equity REITs was up nearly 14 percent, mortgage REITs rose 81.90 percent, and hybrid REITs were up 50.54 percent. The index for all REITs, says the association, rose 15.41 percent.

Although much of the real estate industry is recovering nicely from the nationwide recession, lodging firms are dragging down the rest of the sector.

For instance, Boykin Lodging Company (NYSE: BOY) suspended its quarterly cash dividend payment for the fourth quarter of 2001. For the first three quarters of 2001, Boykin declared dividends of $0.365 per share, or a total of $1.095 per share. The company has met the minimum distribution requirements for 2001 REIT qualification purposes.

FelCor Lodging Trust Incorporated (NYSE: FCH), one of the nation's largest hotel real estate investment trusts (REITs), said it anticipates a fourth quarter RevPAR (revenue per available room) decline between 20 to 25 percent. FelCor also reported that based on current projections, its 2002 portfolio RevPAR will be flat to a negative five percent when compared with 2001.

A report from Standard & Poor's shows a large increase in lodging mortgage delinquencies in the commercial mortgage-backed securities (CBMS) sector during the fourth quarter.

These delinquencies doubled to a rate of 3.8 percent, up from 1.9 percent in June. In contrast, the delinquency rate of mortgages on all property types in Standard & Poor's rated CMBS universe is 1.3 percent.

Aside from the spike in lodging delinquency rates during the fourth quarter, Standard & Poor's reports that the dollar level of mortgage delinquencies remained relatively stable through November 2001. At that point, lodging delinquencies rose to $700 million, up from $350 million in October 2001.

"During the last quarter of 2001, the lodging industry's operating performance deteriorated dramatically from the previous year's level," said Peter Kozel, director of real estate research at Standard & Poor's. "Revenue per available room (RevPAR) was down by more than 15 percent. This collapse has contributed to a large jump in lodging loan delinquencies."

"Lodging loans on Florida properties currently have the highest delinquency rate, and RevPAR in both the Miami and Orlando markets is down by just more than 25 percent," Kozel said. "However, this is not the full story, because the increase in the supply of lodging rooms during the last three years is also having an effect on the percentage of mortgage delinquencies in the various regional markets."

Real estate industry executives have been predicting a slow but steady recovery for the lodging industry, with RevPAR recovering some time in the late second or early third quarter of 2002. But Standard & Poor's disagrees.

Standard & Poor's expects that the anticipated economic recovery is likely to be delayed in most of the regional markets in California and the Northeast. The firm predicts that RevPAR will decline an additional 3 percent to 5 percent in 2002 from the level in 2001. Consequently, even though the current level of delinquencies is quite low in these markets, there is a significant chance that an additional wave of delinquencies on lodging loans may emerge during the second half of 2002.

And while the rest of real estate tries to point out that lodging has been by far the hardest-hit segment of the industry, these increased delinquencies still have a negative effect on real estate as a whole. Even Santa and his nine four-legged friends can't make hay out of late loan payments.

For more articles by Lesley Hensell, please press here.

Published: January 3, 2002

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Lesley Hensell covers commercial real estate and financial issues for Realty Times. Based outside of Dallas, Lesley works with high-tech and real estate clients as an independent marketing and public relations consultant. She also writes for several publications, including the Dallas Morning News. E-mail Lesley at: lhensell@earthlink.net