Hotel News Now spoke with bankers from PMZ Realty Capital to get their take on the current lending environment for the hotel industry.
ATLANTA—The current outlook for hotel lending is rosy, according to Peter Berk, president of PMZ Realty Capital’s hotel finance group.
During a break at last month’s Hunter Hotel Conference, Berk said the outlook for the general economy remains strong.
“There aren’t a lot of hotels in distress,” he said. “(Revenue per available room) continues to increase, albeit at lower rates this year than we’ve seen in prior years … as long as the general economy remains strong, the lenders will continue to lend.”
There’s a lender for every deal, he added. Given where the cycle currently is, “there’s a lot of money out there for pretty much any kind of deal and multiple lenders interested regardless of what the opportunity is. Our job as an intermediary is to find the right check book for the right deal,” he said.
Michael Sonnabend, managing partner at PMZ, said construction loans are a little harder to get right now. While he agreed there is a lender for every day, he believes borrowers must have realistic expectations.
“I think in the construction lending environment, the borrowers are looking for things that are more than just one lender to get to the leverage (point),” he said. “There’s banks for lending, there’s also nonbanks. Leverage levels are quite different than they were two years ago.”
Fixed rates versus floating rates
When it comes to looking at fixed rates versus floating rate loans for a project, Berk said fixed-rate loans are better for people who are working on long-term projects.
“Right now, fixed-rates loans are around (4.3%), and either (refinances) or cash out loans or acquisition loans, and those are good for people with generally long-term goals, five or 10-year horizons,” he said.
Both Berk and Sonnabend said floating-rate loans are better for deals with more flexibility, such as projects that haven’t happened yet. Deciding on a fixed-rate or floating-rate loan depends on the business plan, Berk said.
“Bridge loans, floating-rate loans are good for people who are buying (something) that maybe needs a deep renovation, flag change, maybe a hotel with no operating history, and it’s to execute the business plan,” he said. “Once that business plan is executed, (they can) either sell it or covert it into a fixed-rate loan.”
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