Stonehill Strategic Capital’s president answers five questions about the lending environment and terms.
Editor’s note: This is part of a monthly series of Q&A articles from lenders who provide capital to the hotel industry. Hotel News Now provides the questions each month.
What are the two most important things an owner/buyer of a property in a secondary or tertiary market should know about the lending environment?
Globally, credit is tightening and this is even more true in secondary and tertiary markets. Lenders are pulling back, and the two primary credit metrics include lower leverage and a focus toward existing relationships with strong sponsors.
How would you describe the current lending environment to the environment of three years ago?
The amount of capital is probably similar to where we were three years ago, but there are more deals and more equity so lenders can be much more selective. In addition, starting in June of this year, you will begin to see the wave of 2006 and 2007 commercial mortgage-backed security loans maturing, approximately $24 billion. Underwriting metrics are probably the biggest difference, as lenders tend to be more conservative given the fear, at a macro level, that we are pretty late in the real estate cycle. We tend to feel that the pullback in the credit markets, and economy in general, will create slower growth and a longer runway.
What are the general terms you are seeing for the loans you are processing now?
We are a bridge lender that provides short-term, two to three years, floating rate capital for transitional assets. Our loans are interest only, anywhere between 65% to 85% leverage with rates starting in the high 6s.
How do you view brand versus independent criteria when it comes to lending?
We prefer branded hotels given the resiliency of these properties, which provides down side protection.
What economic benchmarks do you track to gauge the future of hotel lending and why? (Examples: RevPAR performance, GDP growth, unemployment statistics, etc.)
Hotel performance has historically tracked very closely to GDP, so from a macro level this would be the main economic barometer. However, we tend to focus on the fundamentals of the individual submarket, and we believe there is always opportunity if you have the appropriate brand, basis, operator and demand drivers.
Mathew Crosswy leads Stonehill Strategic Capital’s (“SSC”) efforts in sourcing and structuring new credit opportunities, while continuing to build and maintain existing relationships with investors and borrowers. Under Mathew’s leadership, SSC has deployed over $500 million in hotel debt and preferred equity investments.
Prior to serving as President of SSC, Mathew was responsible for sourcing, negotiating, and financing hotel investment opportunities for Peachtree Hotel Group. He served as a liaison for debt relationships across all types of financial and equity market participants. In this role, he sourced, arranged, and placed over $600 million in deals.
Mathew began his career with Greystone Financial in their CMBS Group consulting with B-Piece Investors to securitize their multi-billion dollar portfolios. He later went on to join Specialty Finance Group (“SFG”) where he enhanced his knowledge of the hospitality industry by underwriting complex hospitality construction and takeout loans ranging in size from $5 to $75 million. At the end of his tenure with SFG, Mathew asset managed a $1.8 billion portfolio.
Stonehill Strategic Capital, an affiliate of Peachtree Hotel Group, is primarily focused on funding permanent financing, bridge loans, mezzanine loans and preferred equity investments backed by limited-, select-, and compact full-service hotel assets. Stonehill Strategic Capital provides creative finance solutions for hospitality projects seeking capital to complete acquisitions, recapitalizations, refinancings, and renovations. For additional information, please visit http://stonehillstrategiccapital.com/.
Correction, 18 May 2016: An earlier version of this article misspelled Mathew Crosswy’s name in the feature art.