As President of the Hotel Finance Group at PMZ Realty Capital LLC, Peter Berk has financed in excess of $2 billion worth of hotel assets for both entrepreneurial and institutional clients representing over 20,000 hotel rooms—both full- and limited-service brands for every major hotel chain. Berk, who spoke with LODGING at the recent 2022 Hunter Hotel Investment Conference, described the role of “middle guys” like PMZ in helping clients find funding solutions, the impact of inflation and continuing uncertainty on their decisions, and discussed the products that are in greatest demand now and why.
What has the period since the beginning of 2021 been like for PMZ’s business?
Overall, 2021 was an okay year for us. For the first quarter, we were still dealing with COVID, but the commercial mortgage-based security (CMBS) market opened back up in April of 2021. It then continued to do well for six months, until November and December, when Omicron led to a pullback. Since the middle of January of this year, our business has been great.
What types of loans are most popular now?
Since the end of 2021, we’ve been doing a lot of bridge loans to provide short-term relief for people—mainly in urban areas—without the cash flow to do a CMBS or insurance company loan. Bridge loans are interest-only loans priced at about 5 percent for a 3-year term, with a 1-year extension. For those needing a cash-out, CMBS loans are the best avenue for borrowers with sufficient cash flow to qualify for them. Many turned off by their interactions with the servicers providing those and other loans have turned to “middle guys” like us for the comfort of a relationship loan—especially while there’s so much going on in the world and economy.
Is there anything you look for specifically when considering a bridge loan for a property?
Of course, we look at the market and the sponsor, but we also examine data on how well the property and its market performed in 2019, that is, before the pandemic. Even though the market might be down now, the metric we base our decision on is 80 percent of that 2019 figure. We also factor in demand generators. Will there be a new Amazon facility, plant opening, or expanding highway nearby? Similarly, we consider potential negatives such as plant closings.
Do you expect this demand for bridge and shorter-term loans to continue?
Right now, there’s so much tumult; people are nervous about going long-term. They don’t know whether they will be shut down again, if the United States will be pulled into a war, or how inflation and the economy will impact them. I think the bridge loans especially will be where it is until there’s more visibility.
Is inflation currently having a significant impact?
Definitely, inflation affects everything, and it’s driving up interest rates. For example, the 10-year treasury rate has gone up to 2.4 percent; it was 1.5 from just 2 months ago. Higher interest rates affect the pricing of the loan; now, instead of interest rates being 4 and a half, it’s they may be 5 and a fourth or more. The hope for owners is that inflation will drive up room rates, but that hasn’t happened yet.
Is this conference an indicator that corporate businesses will be again regularly having meetings as in the past?
I’d say we’re here mainly because we’re in the business—after all, if we don’t travel, who will? But as a result of the pandemic, companies have been re-educated—myself included—about the need to meet in person. I do think people will have meetings again, but not as frequently—for example, maybe instead of meeting annually, dental conventions will be held every other year. In terms of corporate travel, I think the salespeople will still travel, but likely won’t be required to visit customers four times a year as in the past. These salespeople might take out their customers for a nice dinner once a year and do video calls for the other three times.
How is your own business evolving to meet the financing needs of the hotel industry?
Hotel financing is all we do, but we’re intermediaries; we don’t make the market—the market makes us. Our business is driven by what owners want, so it’s our job to always have our pulse on the market. When lenders get calls from owners or us, they hear what we’re looking for, and can come up with products to meet that demand.