Lenders see hunger for deals in hotel industry
Lenders see hunger for deals in hotel industry
03 APRIL 2018 8:13 AM

A group of lenders speaking at the Hunter Hotel Conference said lenders are eager to do deals within the hotel industry.

ATLANTA—With the exception of construction financing, there is plenty of money available to borrow for hotel deals at the moment, according to a group of lenders, and competition is keeping the cost of borrowing down even as the Federal Reserve increases interest rates.

Speaking during the “Active lending on midmarket hotels” panel at the recent Hunter Hotel Conference, lenders said many in their position are eager to ink deals as a huge amount of capital sits ready to be deployed.

“Lenders are starting to capitulate on things to get deals done,” said David Turley, principal at Cronheim Hotel Capital.

Peter Berk, president of PMZ Realty Capital, said it’s important to remember that lenders aren’t just gatekeepers. They’re also people who need to put money out to justify their existence, he said.

“Lenders are looking to say ‘yes,’ not to say ‘no,’” he said. “As long as (a borrower’s) credit works and (the project’s) story makes sense, there should be a lender out there for it.”

Panelists noted there are some things people should keep in mind to avoid tripping up deals, including the fact that they should be as honest and transparent with their lenders as possible.

“Transparency is big,” said Brad Heritage, SVP of business development and marketing for Northeast Bank. “It blows my mind what (borrowers) think we won’t discover through the due diligence process. That’s a big piece of the puzzle. We want to know the story, and that means all of the story. The sooner we know (about potential problems), the more creative and productive the dialogue and back-and-forth will be.”

The world of SBA
Several of the lenders on the panel were involved in U.S. Small Business Administration lending, but they noted there are some things borrowers should keep in mind, not the least of which is the fact it often takes more time.

“It depends where you are in the development process,” said Jamie Bourgeois, senior loan officer for Live Oak Bank. “I’ve seen deals take four months and deals that have taken a year. If you come with an idea with concept plans and the land taken down but no design or construction ready, you’re going to be a year out.”

Bourgeois said “truly shovel-ready” projects, which include city approvals in hand, should take four to five months to get funding in place.

Laurie Ivy, SVP of lending for PMC Commercial Trust, said her company realizes that SBA lending isn’t targeted toward “the most experienced and strongest borrowers,” so PMC puts a high emphasis on strong credit in place of a long track record in the hotel space.

“We’re trying to match the right type of deal with the borrower,” she said. “We can do first-time owners, but maybe they don’t get to take on the largest project in our range.”

Moderator Andrew Hibbard, VP of finance and investments for Vision Hospitality Group, said SBA lending typically has higher-than-average closing costs and transaction expenses, but Bourgeois said that isn’t just lining the pockets of SBA lenders.

“Those fees go to the SBA or the USDA to keep the program running,” she said. “If you look at what the program is designed to do, it’s all about job creation.”

Construction lending
Panelists acknowledged that construction financing remains the one sore spot in an otherwise positive lending environment, although they also said this can be viewed as a positive in terms of regulating supply growth.

That doesn’t mean there isn’t interest.

“I’ve met with a lot of developers and owners on the warpath with capital looking to do deals,” Turley said.

Panelists said there is some construction financing available from debt fund lenders, but it has drawbacks.

“Their rates tend to be higher,” Turley said, noting it shouldn’t be a developer’s “first or second resort.”

Berk said it’s important to remember that banks don’t necessarily view “construction” in the same way as developers, so there are ways to get some deals inked by being creative. He said lenders would classify a complete renovation of something like an office building as a change of use and not new construction, meaning they don’t classify financing for that work as construction lending.

Berk said his company is currently dealing with such a project where a developer is turning a former office building into a Fairfield Inn & Suites property.

“It’s a change of use from a lender’s perspective, so they categorize it as a renovation,” he said. “Even though, for everyone else, it sounds like a construction loan.”

No Comments

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.