The Influence of Hotel Characteristics on Debt Servicing and Default in the U.S. Lodging Sector

Abstract

This study investigates the influence of hotel attributes and characteristics on debt servicing and default in the U.S. hotel sector. Employing a unique dataset that we derived comprising more than 2,000 hotels from five recent years, this study provides empirical evidence of significant effect of hotel characteristics on debt servicing performance and default. Debt service and debt yield performance is significantly and negatively associated with the likelihood of default. Hotel default probability also varies significantly across various hotel characteristics, including service type, location, class, size, and age. In particular, the results show interstate hotels by location, economy and midscale hotels by class, smaller hotels by size, newer hotels by age, and hotels that are components of portfolios with significantly lower probability of default. Analysis by hotel service type provides empirical support for the main findings. Theoretical and practical implications provide owners and investors with relevant information for hotel investment decisions.