LOS ANGELES—With a hotel lending portfolio totaling approximately US$6 billion, Wells Fargo is among the most active of the active providers of debt to the hotel industry.
During an interview at the Americas Lodging Investment Summit last month and an ALIS lenders panel he participated on, Gregory J. Wolkom, executive VP at Wells Fargo, talked about why his employer is so bullish on the sector.
“We’ve tried to take advantage of what we see as a good time in the market to get back into hotels,” he said, noting there aren’t many senior lenders such as Wells Fargo participating in the sector right now.
He added, “We like the sector. We like where we are in the cycle. We like the lack-of-supply story.”
Still, he said the industry is in for a long recovery. “First inning,” he responded when asked where the sector was along the path to full recovery.
Wells Fargo’s loan portfolio overall totals approximately US$100 billion. Wolkom declined to say how much leverage the bank would provide to hotels this year. He said the bank approaches each opportunity on an individual basis, and if the numbers work, Wells Fargo will act.
Good lending stories
Wolkom said the deals it is most likely to strike are with the “major brands” in the upper-upscale and premium-select-service categories. That said, Wells Fargo is willing to listen to independent and boutique hotels, he said.
According to the Hotel Investment Barometer, a sister publication of HotelNewsNow.com, Wells Fargo has been active of late. Among the most recent deals:
| Borrower |
Value |
Date |
Takeaway |
| Apollo Commercial Real Estate Finance |
US$506 million |
11 December 2011 |
Apollo increased its Wells Fargo facility, according to CityBiz Real Estate. The facility bears interest at 30-day Libor plus 1.5%. |
| Apollo Commercial Real Estate Finance |
US$264.4 million |
11 January 2012 |
The deal replaces US$298.6 million of commercial mortgage-backed securities with a credit facility, according to CityBiz Real Estate. The move results in a weighted average cost of funds of approximately 1.9%. |
| Apple REIT Eight |
US$40 million |
13 January 2012 |
The loan is secured by the Residence Inn by Marriott in Burbank, California. Interest is set at a variable rate of one-month U.S. dollar Libor plus 4.25%. The loan matures in January 2015 with a one-year extension option. |
Underwriting
When considering financing deals, Wells Fargo checks to see if there are multiple demand drivers in the market. “We’ve tended to stay away from resort and luxury, but we have done them” in the past, he said.
The lender also looks closely at top 25 markets and, specifically, top 10 markets.
Sponsorship also is a key component. “Reputation is very important for us,” he said.
Wells Fargo, as many other lenders around the hotel space have done recently, has shied away from doing a lot of construction lending. “The risk/reward isn’t there,” Wolkom said. “The return isn’t there.”
As far as rates are concerned, on a senior loan basis deals are being priced at interest rates of approximately 4% to 5% and at Libor plus 350 basis points with a Libor floor, he said.
