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Ithaca, NY, March 26, 2015 - A new report from the Center for Hospitality Research (CHR) highlights the factors that drive the interest-rate spread between loans for hotels and office buildings. That interest-rate spread, in which hotel loans become more or less expensive than loans for office buildings, is a predictor of the relative delinquency of the hotel loans. The factors that cause those interest rate differentials are important, because they help forecast the fate of the hotel finance market. The report, "Looking Under the Hood: The Catalysts of Hotel Credit Spreads," by Jan A. deRoos, Crocker H. Liu, and Andrey D. Ukhov, is available at no charge from the CHR.

Using a statistical framework known as vector autoregression (VAR), the researchers analyze the catalysts that drive that credit spread (which is also known as risk premium differential). "Lenders require hotel owners to pay a higher interest rate than other real estate, because hotels are viewed as a more risky investment," said deRoos, the HVS Professor of Hotel Finance and Real Estate and an associate professor at the Cornell University School of Hotel Administration (SHA). "Our analysis captures the elements that contribute to that risk."

"We found that hotel credit spreads against office building loans widen when the general economy worsens, anticipated corporate profitability declines, capital availability decreases, or when hotel revenues decrease," added Ukhov, who is an assistant professor at the SHA. "These factors have different weights over time, but when any of these factors decline, we liken this to when the canary in the coal mine stops singing-there's trouble ahead."

"We used the VAR analysis because this allows us to analyze all these factors simultaneously and capture their interaction as they affect the risk premium differential," said Liu, who is the Robert A. Beck Professor of Hospitality Financial Management at the SHA. "The variables that are statistically significant in our analysis capture risk and return information embedded in the risk premium differential."

In an earlier study, the three researchers established the connection between hotel loan delinquency and the hotel risk premium, as compared to office building loans. That study, "Relative Risk Premium: A New "Canary" for Hotel Mortgage-Market Distress," is also available at no charge from the CHR.

About The Center for Hospitality Research

A unit of the Cornell University School of Hotel Administration, the Center for Hospitality Research (CHR) sponsors research designed to improve practices in the hospitality industry. Under the lead of the center's corporate affiliates, experienced scholars work closely with business executives to discover new insights into strategic, managerial, and operating practices. To learn more about the center and its projects, visit

Contact: Carol Zhe / 607.254.4504

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