On the last day of the 2021 Hunter Hotel Investment Conference, hotel lending experts discussed the current landscape of loans, financing, and investments post-pandemic. Moderated by Andrew Hibbard, SVP of finance and investments for Vision Hospitality Group Inc., the panel focused on how the pandemic has affected hotel lending, what borrowers are currently interested in, and the future of the lending environment.
There have been a variety of challenges and changes to hotel lending because of the economic downturn caused by the COVID-19 pandemic. Peter Berk, president of PMZ Realty Capital LLC, said that in response to challenges, many lenders are “looking at 2019 numbers and taking anywhere between a 10 to 20 percent haircut off of those” to underwrite a loan. He continues, “Then, they’re looking at 2020 to see how you’re actually doing and putting an interest reserve in place.”
Berk also mentioned that although some hotels are “challenging to underwrite,” there is a positive side to the lending landscape. He said, “Rates are really cheap.” Lenders can “lock in” some hotel assets with “really cheap interest rates if you’re willing to move forward with that product.”
What has gotten lenders through the past year, says James Petty, managing director of hospitality franchise finance for Western Alliance Bank, is “flexibility.” He adds that as Western Alliance Bank goes forward, “we’re expanding our relationships with our biggest customers. We’re going to open up… past relationships that we do not enjoy a balance sheet with today. We’re going to selectively pick a couple of others and be very opportunistic.”
Many lenders are finding SBA loans attractive, and there have been some benefits to pursuing SBA loans. One such benefit that Laurie Ivy, SVP of lending for PMC Commercial Trust, identifies is “providing the waiver of SBA guarantee fees, so there’s no fee to enter the loan. A lot of our workers are finding that very attractive—as long as the appropriations for that holdout, it should go until the end of September.” However, Ivy noted, it’s “projected that the loans might run out sooner.”
Ivy added, “And the SBA is also providing payments on behalf of the borrowers. So, for all of the borrowers on our books last year pre-pandemic, the SBA made six months’ payments on their behalf rather than having a deferment. They were getting their principal and interest paid. And then, for new loans that are happening now, they will provide $9,000 a month for three months toward your payments.”
In addition to SBA loans, borrowers are interested in a “variety of capital sources,” according to David Turley, president of Cronheim Hotel Capital. “What we’re finding as capital has started coming back into the space is a need to have a very, very wide… landscape universe of capital sources to represent hotel owners. We’re actively sourcing capital from several hundred capital sources: banks, finance companies, insurance companies, debt funds, private equity funds—the whole gamut.”
As for the future of hotel lending, the experts had a mixed bag of thoughts. While Petty thinks rates will be the same next year, Ivy said she thinks rates will somewhat rise. Berk said that two entities could be in similar situations and have “completely different views.” He added, “There’s a lid for every pot. It behooves you to go out and really canvas the market and talk to a lot of different people…. I think we’re going to see a significant increase [in interest rates] in the next year.”
And Turley added, “I think there’s going to be a need for creative solutions to get deals done. I think as banks come back into the market, they’re going to do so very conservatively.”
