Panelists: 2014 debt market looks like 2007
08 MAY 2014 7:07 AM
Today’s hotel debt market looks a lot like the heady days of 2007, panelists said Wednesday during the Hospitality Asset Managers Association’s spring meeting.
SAN DIEGO—With the possible exception of construction financing, this is the best time in the past several years for hotel debt borrowers, panelists said during the Hospitality Asset Managers Association’s spring meeting.
Moderator of the capital markets-focused session Robert Stiles, founding principal of investment bank RobertDouglas, said the debt environment is in supreme health. The percentage of loan defaults in the system (28%) is decreasing as is the amount of new distress.
“This is the most liquid moment since the first half of 2007,” he said. Commercial mortgage-backed securities comprise one-third of the liquidity in major metropolitan markets, Stiles said.
His fellow panelists agreed. Alan Flatt, director at Bank of America Merrill Lynch, said as recently as 2012 his bank was taking a close look at each hotel on which debt might be placed. That’s not the case now.
“When we open a loan package or look at something from a borrower, we assume the property is doing pretty well and it will continue to perform stronger,” he said.
Bank of America isn’t asking borrowers to give a complete rundown of why their property deserves the financing. “It’s kind of a given,” he said.
Improving fundamentals is a big reason why the debt spigots are wide open, Stiles said. “The industry just really seems to be going from strength to strength,” he said.
That’s not to say Bank of America, and other lenders, aren’t being careful, Flatt added. “Memories are short and lenders do not want to get caught,” he said.
Following Flatt’s comment, Louis Stervinou, managing director at Eastdil Secured, said: “I wonder when lenders will (use) forward numbers.”
“I miss those days,” Stiles joked.
Flatt followed the exchange by discussing loan-to-value ratios in the marketplace.
“I haven’t seen a 60% loan in a while and when we do, we all trip over ourselves to do it,” Flatt said.
The one type of loan that can still be difficult to find is a new-construction loan, Stiles said. However, that area of lending does seem to be getting stronger, he added, pointing to the thousands of rooms under construction in the New York market. It shows that at least some new-construction money is getting through.
Flatt said Bank of America is willing to look at new construction, but such deals need to have a significant amount of equity in them.
“I don’t think you’ll see debt driving any new construction,” he said.
Stervinou said there is a lot of efficiency in the financing markets.
“Owners and holders of real estate, they have options,” he said. “You can hit the sell button or you can hit the hold button.”
Stervinou said his firm tracked approximately between $5 billion and $6 billion in deal volume during the first quarter, much of which was represented by select-service hotels.
There is heightened interest in secondary markets when it comes to transactions, Stervinou said. But John Sauter, managing director for West Coast acquisitions at CBRE Global Investors, said 85% of the deals his firm strikes are in the more traditional gateway markets.
“We just feel there is more liquidity in those markets when you go to exit,” he said.