As the hotel industry faces the possibility of a slowdown in the near future, lenders are shifting what they’re looking for in applicants for new construction projects. LODGING caught up with Anuj Mittal, CEO of CrediVia, a platform to simplify the commercial loan process for borrowers, to discuss the trends shaping hotel lending today, what lenders are looking for from applicants, and strategies hoteliers are using to position their assets for a possible downturn.
What’s the biggest trend shaping hotel lending today?
We’ve had a very good run—perhaps one of the longest, continuous, successful, positive momentums since the 2009-2010 timeframe. A lot of good supply has come and has been managed very well—the current supply and demand are in check.
The question, of course, that’s looming in everybody’s head is, ‘If a recession comes, what will it look like this time?’
How are hoteliers positioning their assets for the possibility of a downturn?
Most sophisticated hoteliers who are or have been in the expansion mode are really paying huge attention to demand and supply, should they adjust a little bit or demand softens. There’s always an inherent level of demand—you will have family reunions, personal travel, and some corporate travel. But you may see a slight decline in occupancy and some pressure on rates. If you’re properly leveraged and you have cash reserves, you should be able to sail through this.
From your perspective, what are lenders looking for right now?
They’re pretty much in the same scenario as borrowers. Of course, a lender’s job is to police the lending—what they’re looking for is more cash from developers and the down payment, and lower loan-to-cost and loan-to-value ratios, which always will result in a higher debt-coverage ratio. While, historically, we may have seen a ratio of 1.4, I’m seeing right now for new construction, lenders are looking at ratios of 1.6 to 1.8. They’re doing an excellent job building in the hedge into the current lending environment, and that will preclude them from getting into trouble or the loans getting into trouble.
They’re also becoming more and more selective in terms of quality—the location, the market, the borrower’s experience, the overall strength of the borrower and their portfolio.
Are there any specific types of hotel assets that are really attractive right now to lenders?
From a new construction perspective, definitely branded, limited-service hotels in good locations. Marriott, Hilton, Hyatt, IHG, Wyndham—all these brands that have proven over the years—definitely will continue to attract the right lender.
Are there specific markets that are being approached with more caution?
We should watch New York, Miami, Asheville, Chicago—some of these big gateway cities or markets that have a huge influx of tourists or tourism every year. In the current environment, we have political instability across the world—potential heated-up conversations with China and India. We should be cautious in markets that are very reliant on tourism.
What should hoteliers know to be successful in the coming years?
What’s most critical for hoteliers at this point in time is to take a conservative approach when it comes to new construction. Spend a lot of time on the demand drivers and focus in on where the demand is coming from. Is it temporary or permanent in nature? Really get to know your market and get to know your customer, because, at the end of the day, it’s your risk. Don’t just rely on consultants—do your own homework and understand the new supply in any market.
Anuj Mittal is an experienced commercial real estate professional of more than 25 years. In 2004, he founded MJM Group, a hospitality development company active in the Southeast and Midwestern United States. His knowledge of the CRE lending and borrowing process inspired him to create CrediVia.
