ORLANDO, Fla. (AP) — Hotel owner and developer Danny Gaekwad survived steep drops in business after the 9/11 attacks and the recession of the late 2000s, but nothing prepared him for the revenue tailspin that followed lockdowns and travel restrictions in March to stop the spread of the new coronavirus.

At one hotel, a Holiday Inn in Ocala, Florida's horse country, revenue last April was $38,000, a drop of almost 90% from the previous April. His problems were compounded by the type of loan he took out for the hotel — a $13 million loan that was bought by Wall Street investors.

Commercial mortgage-backed securities loans like the one Gaekwad has for the Holiday Inn are packaged in a trust. Investors then purchase bonds from the trust using properties like a hotel as collateral. The loans are attractive to borrowers because they typically offer lower rates and longer terms. About 20% of hotels across the U.S. use these loans and they represent close to a third of all debt in the hotel industry, according to the American Hotel and Lodging Association.

Unlike banks, which have been more flexible in renegotiating loan terms to help them through the tough times, hotel owners like Gaekwad say it has been much more difficult to get any forbearance from representatives of bondholders, and they worry that their businesses may not survive because of the lack of relief.

At the end of April, only 15% of CMBS borrowers have received relief compared to 80% of bank borrowers, according to a member survey by the American Hotel and Lodging Association. For one thing, the rules that govern the trusts that hold the CMBS loans typically put strict limitations on any loan modifications.

Additionally, representatives of the bondholders often charge expensive fees to negotiate with the borrowers. They also have their own real estate portfolios and don't mind acquiring new ones, so there's less incentive to negotiate with borrowers compared to banks, which don't want to be in the real estate business should a loan go bad, experts say.

"This is the Big Bad Wolf. You have no idea what devastation CMBS loans will have on us," Gaekwad told Vice President Mike Pence last month during a forum on Florida's tourism industry in Orlando. "If you don't put it in a cage, it will finish us."

Other types of commercial properties such as retail, industrial and office also use CMBS loans but none have seen delinquency rates rise the way the lodging sector has. In May, the lodging delinquency rate rose to 19%, up from 2.7% in the previous month, according to real estate data-provider Trepp, LLC.

Commercial properties such as apartment buildings and office spaces have money-generating leases that range from one year to multiple years. But the typical lease for a hotel is just a night or two, so when travel comes to a halt, hotel owners are pinched, said Sam Chandan, a real estate economist at New York University.

"This being an economic slowdown with constraints on travel, compounded by very real restrictions on personal mobility, it has been the perfect storm for the hotel sector," Chandan said.

Gaekwad says he has gotten relief on other loans he took from banks for his various properties in central Florida, which include hotels, restaurants, apartments and an RV camp. For the Holiday Inn, Gaekwad turned to a CMBS loan after the last recession a dozen years ago when banks were tightening their belts.

These loans tend to be more complicated than bank loans, but representatives of the bondholders are willing to talk to borrowers, though every case is different, said Lisa Pendergast, executive director of the CRE Finance Council, a trade association for the $4.4 trillion commercial and multifamily real estate finance industry.

"A lot of borrowers think servicers will say, 'There's no forbearance. We are going into foreclosure.' I can't tell you how silly that is," Pendergast said. "It's just a slower process."

Pendergast said the loans are an important segment of the lending community, often providing money in markets when other lenders are unable to because of regulatory or economic concerns.

The Federal Reserve in April added commercial mortgage-backed securities to its Term Asset-Backed Securities Loan program, but a group of lawmakers said in a letter this week to federal officials that more needs to be done. The rigidness of the loan terms makes it difficult for the borrowers to get any relief, the bipartisan group of 105 U.S. representatives said.

"Without a long-term relief plan in the face of an elongated crisis, CMBS borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and destroying jobs for Americans across the country," the letter said.

After struggling to make payments on the Holiday Inn loan in March, April and May, Gaekwad didn't make his $107,000 monthly payment in June. He had contacted the loan servicer for the bondholders, Wells Fargo, at the start of the crisis but he was told he would have to contact the loan's special servicer, Rialto Capital Advisors, which he and his attorney did.

They only heard back earlier this month when Gaekwad received a "pre-negotiation" agreement, along with an ultimatum that he must sign it before any talks can take place. Gaekwad says he's debating whether to sign because the talks could cost tens of thousands of dollars, he'd be limited as to what he can say about any future agreement and there is no guarantee he'll get any relief.

A spokesman for Rialto said she couldn't comment on the specifics of any case.

Gaekwad worries that if even he gets new loan terms, he could be strung along, making payments until the hotel industry improves and the investors foreclose on his property and sell it at a profit.

"They will let me spend my savings and money ... and they are waiting like a big bad wolf," Gaekwad said.

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