ATLANTA—What once was a trickle in the capital markets is quickly becoming a steady stream for the right hotel assets in the right markets, according to hotel executives during a panel at the International Society of Hospitality Consultant’s 2012 Annual Conference.
“I was surprised,” said Paul Whetsell, president and CEO of Loews Hotels, of the ease at which the group secured financing for the former Renaissance Hollywood Hotel & Spa.
Loews acquired the 632-room property in June for a total investment, including $26-million renovation, of “close to $200 million,” he said.
“We didn’t get aggressive in terms of the type of loan we wanted to put on, but it was about a 55% total project cost, and I was pleasantly surprised that we had eight real quotes,” Whetsell said. “Of the eight, I eliminated two who couldn’t really hit the dollar amount we wanted. And of the remaining six, four were completely non-recourse.
“They were at a pretty tight band in terms of the cost, the interest rate,” he continued. “Two suggested a modest amount of recourse in a basically 55%-type of evaluation with a loan-to-project-cost where we had close to $100 million of equity. And with (parent company) Loews Corporation being as solid as they are, we chose to put a slight amount of recourse on the properly and got more than 100 basis point reduction.”
Whetsell said the company also has found success securing construction financing for two new builds: the 1,800-room Cabana Bay Beach Resort at Universal Orlando in Florida; and a 400-room property in Chicago.
Again, the chief executive was “pleasantly surprised” at Loews’ ability to secure financing.
On the Orlando project, the company saw LTV of 50%, with rates at 350 basis points over Libor and full recourse “because it’s construction,” he said.
The Chicago project saw similar requirements. “Loews is the take out upon completion of that construction,” Whetsell added.
InterContinental Hotels Group is seeing success as well, said Kirk Kinsell, president of the Americas. When the group went out for bids on a JV for a Hotel Indigo in New York, the company received eight “very strong” responses, he said.
“I think it’s improving,” Kinsell said.
“I think you are seeing some marginal improvement around the edges,” said Steve Joyce, president and CEO of Choice Hotels International, of the financing environment. Underwriting in urban markets with good sponsors and good deals is “finally coming through with recourse in the 65% level.”
The industry has gotten over the hump only recently, he added. Choice has been working diligently on deals for 10 Cambria Suites during the past three years; all 10 have come through this year.
The numbers aren’t big, Joyce added, but the interest is now there. In several cases, Choice received calls from local banks who said, “We have an allotment of $10 million, and I can give you $4 million. What projects do you have?”
The happy days are not back again, Joyce said, “but there is some thawing of the ice going on.”
Funds from the Far East
An additional source of financing not present during the past few years is funds from Asian investors, the executives said.
“The other thing we’re continuing to see (are) the Far East investors coming through and the China banks coming in and looking to lend,” Kinsell said.
While their underwriting varies, the funds have emerged as a viable alternative for projects in urban and gateway markets.
“New funds are popping up that we’ve never heard of from the Far East that are lending in the states,” Whetsell added.