Lenders said some changes are on the horizon for SBA lending, and they want to find invested owners.
PHOENIX—Hotel lenders said it’s becoming more difficult to get loans approved through the U.S. Small Business Administration, not because lenders are losing their appetite, but because the SBA seems to be mysteriously shifting its priorities.
Speaking at the Hotel News Now Lender Roundtable, Michael Maguire, managing director of Aileron Capital Management, said the SBA seems less interested in hotel projects.
“We use government-guaranteed lending, and it’s getting harder and harder to get hotel deals approved through the SBA,” Maguire said. “We were doing two $25-million deals a month. Now this year, they’re questioning valuations and asking about global cash flow. … That’s an indication to us that it’s not going to get any easier. It’s definitely getting harder.”
Maguire said it’s possible that the SBA has decided to prioritize other types of investments, even though those projects lack the overall economic and job-creation payoffs of hotels.
Laurie Ivy, SVP of marketing with PMC Commercial Trust, noted she’s seeing a higher level of competition with SBA lending and said her company is keying in on transactions with identifiable upsides.
“We’re looking at the sales side and projections in terms of what you can bring to the bottom line and if you can improve the situation,” Ivy said. “We’re asking things like if renovations are needed to improve revenues.”
What are SBA lenders looking for?
Both Maguire and Ivy noted they deal less with properties that have third-party management compared to other types of lenders.
“They are usually smaller properties where management companies might have been blamed for their issues,” Ivy said.
Because their clientele is centered so much on owner operators, involved and experienced ownership is a key factor when looking at making possible deals.
“The more passive (ownership) is, the less attractive it is for us,” Maguire said.
He noted that bringing on a third-party manager isn’t an automatic 'no,' but his company wants to see owners who are taking an active role in the operations of a hotel. He said it’s easier to get invested in an owner who is invested in a property, particularly with someone who is not a long-term player in the hotel industry.
“No one takes care of (a hotel) like you do,” Maguire said. “If you don’t have experience (and you want third-party management), then great, but I’ve never met a management company that wasn’t going to be fired in six months.”