GLOBAL REPORT—The hotel construction financing market is not dead, but it’s not exactly lively, either, lending sources report.
Construction finance debt deals are getting done, though the pace is at a trickle, sources agreed. Following is a summary of some of the construction lending activity from the U.S. hotel sector, according to the Hotel Investment Barometer, a sister publication of HotelNewsNow.com.
| Lender |
Borrower |
Value |
Date |
Takeaway |
| Capital One Bank |
Donohoe Companies |
US$36 million |
17 October 2011 |
Loan helping finance Donohoe's Residence Inn by Marriott Arlington Ballston project in Virginia. |
| Lowe Enterprises Investors |
CIM Group |
US$51.2 million |
16 November 2011 |
The senior construction loan funds the renovation and redevelopment of the former Ritz Plaza Hotel in Miami Beach, Florida. |
| BBVA Compass Bank |
Hidrock Realty |
US$36 million |
1 December 2011 |
Supports the US$72-million development of a hotel at 960 Avenue of the Americas in New York, according to GlobeSt.com. |
| Navy Federal Credit Union and Pen Air Federal Credit Union |
Hyatt Place property in Pensacola, Florida |
US$13.2 million |
30 December 2011 |
Loan was for the development of the Hyatt Place scheduled to open in spring 2013, according to the Pensacola News Journal. |
Tough sledding
 |
|
Mark Socker
|
As it is with other forms of leverage, lenders have pulled in the reins on their underwriting of construction finance loans as the industry continues to crawl back from recession, according to the sources.
Enrique Torres, an analyst at Green Street Advisors, said construction loans can be tough to come by anytime, let alone during a period of recovery.
“There are very limited markets where new development makes sense … It’s still tough to make the deal work,” he said.
Underwriting terms
Though some deals are getting done, obtaining financing for new-builds is “extremely difficult,” Mathew Comfort, executive VP at Jones Lang LaSalle Hotels, said in an email.
“For projects in top-tier markets or those with exceptional demand profiles as well as star-studded sponsorship and a low basis, construction financing in the 55% to 60% range can be found,” he said. “However, most lenders remain focused on cash-flowing lending opportunities at this time.”
 |
|
Bruce Lowery
|
The outlook outside the U.S. borders is just as tough.
“Very, very hard to get,” Marc Socker, director of hotel fund management at Invesco Real Estate, wrote in an email of the European construction financing outlook. “Supply pipeline is very, very low. If (coupled with a management agreement it’s) even harder. Banks will focus on existing clients and in home markets.”
Raymond D. Martz, executive VP and chief financial officer at real-estate investment trust Pebblebrook Hotel Trust, said it’s the regional banks—and not the large, national banks—doing most of the construction lending these days.
He also said most of the construction deals being written are personal recourse loans. “A lot of it is brand-aligned,” he said. “Outside of New York, it’s very difficult.”
Bruce Lowrey, a managing director with RockBridge Capital, said the deals that abound in the hotel transactions market contributes to a difficult construction lending environment. If someone can acquire a hotel for below replacement cost, why would someone consider building a hotel and thus taking on a loan?
Lowrey then countered his argument with this line of thinking: “If you can buy something at a discount, maybe there’s a reason it’s trading at a discount.”
