Who’s Got Money for Hotel Financing?

Lenders’ Pavilion at MLIS Is Your Connection to Financing

The long hotel financing freeze is slowly beginning to thaw. That’s a common sentiment of both participants in a recent roundtable of industry executives held at Michigan State and respondents to the annual Hotel Brokers International/Lodging Hospitality survey of lodging lenders. And if you’re looking for financing—and who isn’t?— be sure to register for the upcoming Midwest Lodging Investors Summit. Sponsored by Lodging Hospitality in association with HVS Hotel Management, the 5th annual MLIS will be held July 16-18 at the Hyatt Regency McCormick Place in Chicago. The School of Hospitality Business at Michigan State University is the academic partner of the conference.

This year’s MLIS will feature a Lenders’ Pavilion, a dedicated area where potential borrowers can meet with representatives from eight firms currently active in hotel financing. MLIS attendees can pre-arrange appointments with the lenders to discuss their projects. Participating lenders include Prudential, Johnson Capital, Access Point Financial, GE Capital and others.

The conference program at this year’s MLIS promises to be the strongest in the five-year history of the event. From keynoters to general session and panel discussion participants, the roster of speakers represents the most knowledgeable, articulate and sometimes-provocative executives in the hotel industry.

Go to the conference website for more information on MLIS.

Survey Says
The HBI survey included a wide range of lenders, including investment banks, mortgage brokers SBA loan specialists and more. And all but 5% of those surveyed are actively providing financing for hotel projects. Two-thirds of the group made more loans last year than they did in 2010. And most expect 2012 to be an active year.

“It will be a great year for hotel borrowers. Index rates are at 50-plus-year lows while spreads continue to tighten amid better industry fundamentals, growing property cash flows and generally more aggressive loan underwriting,” said Max Comess, associate director of the Miami office of mortgage broker HFF. “It’s not uncommon for us to receive a dozen or more quotes for hotel loan requests, and lenders are becoming increasingly competitive with proceeds, interest rates and fees in order to win business.”

While most of the firms participating in the survey provide funds for acquisitions, refinancings and turnaround projects, a surprising 82% said they’ll consider loans for new construction. Many of them are seeking quality projects as exemplified by the lender who’s interested only in “gateway cities and top 30 MSAs. We have a major focus on properties managed by top operators and that will have the ability to substantially grow sales volumes.”

A Little More Optimistic
Participants in the Michigan State roundtable were also generally optimistic about an upturn in financing availability. Ed Walsh of Alpine Capital, who’s had success in getting loans for existing properties, said “new construction is very difficult, although we’re making progress.”

He added that almost every deal in which he’s involved includes an SBA or similar government guarantee component. “It’s not that the deal won’t work otherwise; the banks would rather have the assurance [that comes with an SBA loan],” he said. “I’ll know financing is completely back when I can get a new construction deal done in a relatively short period of time. We’re aways away from that happening.”

Other speakers emphasized the need for the right components for a project to be financed. Steve Kisielica of Lodging Capital Partners said he’s seeing non-recourse deals done with 10% or 12% yields on trailing earnings. “And sponsorship has got to be very strong. Without those two components, we’re seeing zero financing.”

Lenders in the HBI survey said they deal with distressed hospitality loans in a number of ways. Two-thirds of the group attempt restructurings, about half employ foreclosure or deed in lieu of foreclosure tactics and about one-fourth execute loan sales or short sales.

Related Stories
MLIS 2011Recap: Signs of Hope
Another Optimistic Outlook for the Industry
Michigan State Panel Believes Hotel Investments Are Hot Again

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