Lenders: 2016 could have been better, or a lot worse
Lenders: 2016 could have been better, or a lot worse
20 DECEMBER 2016 8:43 AM

Hotel News Now’s go-to lending experts kick off a three-part year-end series of articles by giving their thoughts on how the financing environment unfolded in 2016. 

Editor’s note: This is the first of a three-part series that brings to a close Hotel News Now’s “Lender Insights” feature. HNN reached out to participants of the monthly feature during 2016 to learn their views about three key issues: a look back at lending in 2016; how the election of Donald Trump might affect lending; and what advice they have for borrowers in 2017.

Today’s question: How would you describe 2016 from a lending perspective?

Pelvi Chavda de Vries,
SVP of business development,
Access Point Financial
“While we are possibly approaching a peak in the current lodging cycle, financing was tougher to come by. From what we have seen, the lending community has been conservative and maintained reasonable underwriting standards by looking at projected future cash flows of the property, accounting for supply growth in the market, appropriate loan-to-value metrics and adequate equity. We emphasize a 12- to 18-month interest-only period to allow a property to ramp up and stabilize with a strong emphasis on loan-to-cost ratio at inception of application and LTV based on stabilization.”
Mathew Crosswy, president,
Stonehill Strategic Capital
“In general, 2016 was overshadowed by the uncertainty surrounding new regulations that impacted balance-sheet and conduit lenders. New credit guidelines, such as the risk retention rules, also were introduced. Underwriting criteria tightened significantly for many lenders, and the majority of traditional balance-sheet lenders reduced their commercial real estate exposure. Although time has historically healed all wounds, the Great Recession was still front of mind for regulators in 2016, and their goal was to ensure that history didn’t repeat itself. As a result, it paved the way for alternative lenders and debt funds to become much more active in filling the void in the market.”
Neil Freeman,
chairman and CEO,
Aries Capital
“The 2016 lending market turned cautious, indicating the market is looking at a possible recession in the next 24 months. Permanent lending was readily available for well-located, branded hotels with cash flow, at still affordable rates. The interest rates have increased from the 4s to the 5s but still are attractive by historical standards. Bridge loan underwriting has tightened from LTV of 75% to 65% and rates have risen to a range of Libor +5.5% to 6.5% for non- recourse loans. Construction lending is very difficult as the banks have cut back. Most projects have trouble finding construction loans, and advance rates have decreased from an LTV of 65% to 50%.”
Mike Muir,
EVP of hotel lending,
Live Oak Bank
“I would describe the lending environment in 2016 as one where lenders gradually tightened standards. It appears that many of them fear we are approaching the end of a cycle.”
Rick Rogovin, VP,
Wells Fargo's Hospitality Finance Group
“Proceed with caution. It was clear early in the year that fundamentals were starting to weaken. From a market perspective, demand growth was moderating. Supply in most markets was increasing, and as a result, average daily rate growth was also increasing at a slower pace than the prior year. From an operations standpoint, labor costs and especially real estate taxes were showing greater than inflationary growth. As a result, lenders were reluctant to incorporate much upside in the top-line, or dramatic improvements in operating margins.”
Michael Sonnabend, managing partner,
PMZ Realty Capital
“2016 could best be described as uneven as related to hotel lending. Throughout the course of the year, the capital markets ebbed and flowed in their appetite for hospitality paper. Whether it be large full service assets, or smaller select service there was no constant demand from each sector’s lending community. This affected the sales market most severely.  Many deals ended up being “readjusted” or buyers were forced to utilize less attractive financing than they had modeled for. Interest rates have finally begun to increase significantly, and this is likely to be a precursor of things to come.”

Compiled by Jeff Higley.

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