Earlier this month, I had the pleasure of attending a pair of U.S. hotel lending conferences—one on the East Coast and one on the West Coast. While the content was similar, the prevailing mood in the conference’s hallways seemed vastly different.
I began in Boston at the Hotel Equity and Lender Perspectives conference. This was the first year for the HELP event and as you might imagine from a rookie conference the vibe from attendees was an optimistic one.
For instance, there was talk of lenders at least willing to discuss construction financing for the very best projects. When it’s made, attendees said, construction debt is generally available at low leverage with recourse—but it is available.
Some other takeaways from Boston:
- Loan-to-value is generally in a range of 60% to 75%.
- Interest rates are at approximately 4%.
- Life insurance companies are underwriting more conservatively than other lenders.
- The availability of debt is very sponsor-specific.
- Capitalization rates are all over the place, from 0 to 10+.
- When financing for less than $25 million, lenders are looking for a debt yield of approximately 13%.
A few days later, I flew 2,053 miles west from our suburban Cleveland office to Los Angeles for the 22nd annual Meet the Money Conference. I couldn’t help but notice the slightly more cautious tone of this event. Perhaps location played a role? After all, California certainly has had its share of foreclosure issues during the past several years.
In contrast to HELP, the sentiment surrounding construction financing was much more pessimistic. Perhaps Kevin Mallory, senior managing director at CBRE Hotels, summed up the overall feeling at the conference of construction debt best.
“Even though it’s out there, I don’t want to make it sound like you can get it,” he said. CBRE turns down 90% of the development financing proposals it is pitched.
Takeaways from Meet the Money:
- Commercial, mortgage-backed securities syndications seem to be picking up, though volume is still a long way off from peak.
- There is not enough new issue CMBS to offset all the debt maturities scheduled to come due.
- Financing deals of less than $100 million are attracting multiple lender bids.
- A hotel’s capital expenditure outlook is often the deciding factor in whether a hotel acquisition works or not.
- Mezzanine pricing is between 8% and 12%.
- While interest rate pricing is attractive, the remaining “equity gap” can be tough for borrowers to overcome.
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