LOS ANGELES—The industry’s big money players see a hotel financing scene that is making more noise by the day.
A panel of finance experts during Meet the Money this week agreed that borrowers face a much brighter lending environment today than six months ago.
“It’s all available right now,” said Mark Fluent, head of commercial real estate banking for the western region at Deutsche Bank.
Patrick Deming, managing director at Eastdil Secured, said lenders such as insurance companies are on a search for yield. Anne Hampton, VP at Wells Fargo Bank, said lenders are reaching further to find these returns and this has helped expand the credit markets.
“Cash flows are at previous peaks,” she said, “and the further we get into the cycle, it’s tougher for banks to find loan opportunities.”
A resurgent commercial mortgage-backed securities market is also helping things along and stabilizing capital stacks, the panelists said.
Hampton said CMBS is the catalyst behind the increase in lending capacity.
“It’s been a big, big benefit to borrowers who have assets in secondary and tertiary markets,” Deming said.
The one type of debt that is still yet to show much life, however, is in construction. “You will need special attributes to get it done,” Deming said.
Terms
Lenders began loosening the purse strings during the third quarter of 2012, Fluent said.
“There is a lot of liquidity … up and down the capital stack,” he said.
The speakers identified the following as examples of how loan deals are being underwritten today:
- Interest rates at 4% for 10-year debt;
- loan-to-value of between 60% to 75%;
- a focus on trailing-12 performance;
- debt yields ranging from 10% to 12% for properties in smaller markets; and
- mezzanine loan rates at 8% to 10% (down from 11% to 13% a year ago).
“We’re seeing liquidity across the stack,” Deming said.
Still, it’s important to remember that underwriting standards are going to vary by market, Hampton said. She said some borrowers come to her, saying, “‘I’m getting a 10% debt yield in New York City. Why can’t I get a 10% debt yield in Salt Lake City?’”
They’re two completely different markets,” she said.
For those loans that have slipped underwater, the answer isn’t complicated, said Donald Braun, chairman of Hall Structured Finance.
“It’s a very, very simple thing. You say it, and it’s so obvious, but it’s about communication,” he said.
He said borrowers automatically assume they are in for an adversarial situation when approaching a lender about a loan workout, but that’s not always the case, he said. Lenders are just as eager to work through the situation.
Jonathan Falik, head of hotel investment sales at Newmark Grubb Knight Frank, said borrowers should ensure the lender is looking at the same financial statements as the borrower.
“When something is going wrong on the debt side, you realize how asymmetric the information is between the owner and the lender,” Falik said.