REPORT FROM THE U.S.—Hotel lenders are in an increasingly forgiving mood these days—for the right kind of borrower, financing experts report.
Not wanting to see bad loans hit their books, lenders are being more aggressive in reworking and modifying loans for borrowers, sources interviewed for this report said.
“You can amend, you can extend, you can refinance,” Josh Harris, co-founder and senior managing director of Apollo Global Management LLC, said last month during his webcast keynote address at the Bank of America Merrill Lynch Banking and Financial Services Conference.
There have been numerous refinancing examples that have taken place in 2012, according to lending deals tracked by the Hotel Investment Barometer, a sister publication of HotelNewsNow.com. (Paid subscription required.)
Among them:
- PCCP LLC last month refinanced debt on the 251-room Aloft Chicago O’Hare.
- GE Capital Finance in September refinanced a Courtyard by Marriott and Springhill Suites by Marriott owned by Summit Hotel Properties.
- Terrace Capital refinanced a high-interest bridge loan in June via a 69% loan-to-value commercial mortgage-backed security loan.
- Mesa West Capital in February provided a $130-million first-mortgage loan to refinance the 802-room Hyatt Regency San Francisco.
Lender flexibility
There are a few reasons for this flexibility, sources said.
“My feeling is lenders have been (happier) to work with hotel borrowers over the last few years because a hotel is an operating business,” said Jeffrey K. Eliason, principal of Highland Realty Capital. “Lenders are the least capable of operating that property if they had to take it back as opposed to operating an office building or apartment.”
He added: “They’re more willing to modify the loans, extend the loans, discount the loans if needed. They don’t want to get those properties back. … Lenders are pretty willing to modify hotel loans.”
Ron Wilson, CEO of Hotel Investment Services, shared a similar sentiment. “They don’t want the hassle of a foreclosure and then selling it,” he said.
Another reason for the perceived increase in modifications is because there are many hotels that are solid, cash-flowing properties, but have still fallen outside the terms of their respective loans, Wilson said. Banks want to keep the strong properties in their lending portfolios, so they are willing to work out a deal.
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Chris Clark db Capital Ventures |
The hotels “may be outside their (debt coverage ratio), so they’re technically in default,” Wilson said.
Wilson emphasized that it’s predominantly the cash-flowing properties that are seeing the most success in working with lenders. “If (the hotel) can’t service its debt, then that puts it into a whole different league,” he said.
Alternative lenders
Chris Clark, principal and founder of db Capital Ventures, said the trend also applies to alternative lenders. “On the CMBS side, lenders are starting to become more aggressive on the hotel side,” he said.
Part of the reason for this is because of the billions of dollars in CMBS debt maturing over the next several years. “There’s a tremendous amount of CMBS coming due, and they will have to find a way to work them out,” he said. “Underwriting standards are loosening.”
That said, life insurance companies are not as willing to modify loans because the debt is typically lower-levered, Clark said.