ANN ARBOR, Michigan—Business is off to a strong start in 2013 for Alpine Realty Capital LLC.
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| Ed Walsh, Alpine Realty Capital |
The mortgage banking company and real estate broker recently participated in the refinancing of a 102-room SpringHill Suites by Marriott in Auburn Hills, Michigan. Alpine Realty, a mortgage banking company and real estate broker, placed the original construction loan on the property five years ago. Because of its proximity to Chrysler’s world headquarters and other demand generators near Detroit, there was a high level of interest from a variety of lenders.
The property’s owners eventually agreed to terms with an undisclosed national bank for the refinancing. Fresh off that deal, Edward P. Walsh, president of Alpine Realty, took part in an email question-and-answer interview with the Hotel Investment Barometer.
Hotel Investment Barometer: How available do you think hotel lending will be in 2013? How will it compare to 2012?
Edward Walsh: "I expect hotel lending to be more available now than in 2012, although lending in 2012 was much more available than in the past few years. CMBS lenders are very active as are local and regional banks. One of the biggest changes I have seen is the re-emergence of national banks, who are actively seeking refinancing as well as new construction debt."
HIB: What kind of debt do you believe will be most available?
Walsh: "Anything with cash flow is financeable today, which speaks to lenders anticipating operations to be stable, if not improving in the future. New construction is possible although still very difficult. Underwriting is still tough and requires significant equity."
HIB: How are lenders underwriting deals? What are they looking for?
Walsh: "The underwriting is still stringent with a max of 70% LTV, although we don't see much below 65%. Amortization terms are typically 25 years, and we have seen some out to 30 years. The interest rates are unbelievably low, with five- to 10-year fixed rates as low as 4.1% and not much higher than 4.75%. The CMBS lenders are underwriting anywhere from 10.5% to 12.5% debt yield, which provides them sometimes over a (two times) debt service coverage. With the prospects of inflation in the future, I have numerous clients seeking to lock rates at these levels. Recourse lenders are meticulously underwriting the sponsors, including global cash flow and contingent liabilities."
HIB: What are the biggest challenges to getting a lending deal done?
Walsh: "The leverage still is not where it needs to be to completely refinance the debt in many cases. With interest rates as low as they are now, it seems that lenders should be able to stretch their LTV, but most are 65(%) to 70%, which is better than recent years, but many borrowers need 75(%) to 80%. The SBA 504 program filled that gap for a time, but now that it has gone away, there is still a funding gap. Most deals I complete these days require fresh equity or (mezzanine) despite the fact that the senior lender's DSCR is north of 1.7 (times) in many cases."
HIB: How willing are lenders to refinance loans?
Walsh: "Very willing as long as the cash flow is there. Even with turnarounds or repositioning, debt is available."