With the hotel industry’s recovery from the recession steadily picking up speed, values coming back to pre-downturn levels, and RevPAR growth remaining consistent, the debt markets are returning to normal. And as lenders get more interested and competitive, they’re supplying better terms. “They are significantly better than where they were 18 months ago,” says Angelo Stambules, SVP of Hunter Capital Markets. “The first thing to come back was CMBS—it started significantly improving in 2012. Year over year we’ve seen consistent improvement in CMBS markets since then.” He notes that this gives balance sheet lenders comfort that there will be a takeout for the loans that they put out.
Greg Morris, managing director of Premier Capital Associates, agrees, adding that his firm has seen CMBS 2.0 loans come full circle to where CMBS 1.0 was before the downturn. “When CMBS 1.0 blew up there were some serious concerns, and many of them were addressed by all the bells and whistles built into CMBS 2.0,” Morris says. A lot of the structures were recourse instead of non-recourse types of loan and there were a lot more triggers and criteria built into the loans. Now CMBS underwriting to larger loan amounts and debt yields are much higher.”
More important, Morris says that lenders are now doing smaller deals, “$5 million or $6 million on an asset—and they’re underwriting to as low as 10 percent debt yields. Since the assets are performing well, investors are comfortable investing in that space, and they’re realizing that they have to be competitive.”
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