BOSTON—Lending experts during the Hotel Equity and Lenders Perspective conference last week identified the types of deals they are making with hotels today.
Following are the responses from panelists during a breakout session titled “Hotel Financing Under $25 million.” They were asked by panel moderator Keith Wentzel, managing director of Fantini & Gorga, to talk about “sweet spot” deals.
Julia Anne Slom, senior VP of the commercial real-estate group at The Washington Trust Company
• The company is making most of its loans at approximately the 65% LTV level with debt service coverage of 1.35.
• Washington Trust also has done some sub-65% LTV deals with DSC of between 1.5 and 1.7.
• “We like a known flag,” she said, adding the company has financed a lot of properties under brands from Marriott International and Hilton Worldwide.
• There is a lot of interest-only demand from borrowers, though Slom said she does not believe that will be the case for much longer. “We’re not counting on the interest rate environment staying this low for long,” she said.
• The company does mostly three- to five-year deals but also has done some seven- and 10-year terms.
• Interest rates offered by Washington Trust are between 4.25% and 4.5% on five-year terms.
• The company seeks primarily stabilized assets.
• Washington Trust is not doing any construction lending at the moment.
• The company is traditionally a recourse lender.
Gordon Clough, VP, U.S. Bank
• U.S. Bank is doing mostly three- to five-year terms.
• The bank is a relationship lender.
• Interest rates offered by U.S. Bank are at a rate of 325 basis points over Libor.
• The company does a lot of renovation/construction lending.
Jon Benowitz, managing director, RockBridge Capital
• The company is providing an array of financing, including first-mortgage money to outright ownership.
• The sweet spot deal size for Rockbridge is between $5 million and $15 million.
• RockBridge looks to lend on repositioning deals and is very “sponsor-centric,” he said.
• “We don’t compete on cash-flow deals, and we certainly don’t compete with CMBS lenders,” Benowitz said.
Michael Sonnabend, managing partner, PMZ Realty Capital LLC
• Lenders want cash-flowing properties with experienced ownership.
• Most lenders are comfortable with LTVs in the 65% to 70% range and debt yields ranging from 10% to 12%.
• Five- and 10-year deals are being made, Sonnabend said, with interest rates in the high 4% to low 5% range.
• Life insurance companies tend to be more conservative and want debt yields north of 13% and LTVs of 50% to 60%. “They’re a little more flexible on the (furniture, fixtures and equipment) reserve.”
• CMBS is becoming a bigger player. Of the 45 deals PMZ was involved with a year ago, 35 had a CMBS element.
• “The No. 1 thing we’re looking for in a deal is one we can close,” Sonnabend said, drawing laughter from the audience.