Sara Havlena
Hotel lending completely dried up last year and lenders have remained cautious during most of 2021. Things are expected to greatly improve in 2022 with lenders returning to the hotel space providing more options for borrowers. As transaction activity starts to pick up, loans for acquisitions, development and recapitalizations will be more readily available.
“Lending activity will continue to increase, and we do see a gradual path back to normalized hotel lending in the latter half of 2022 as the pandemic eases and business/leisure travel continues to pick up,” said Vin Basa, VP at Tower Capital. Basa believes borrowers will see more conservative leverage, higher debt yields and prepaid debt service reserves.
Michael Sonnabend, managing member at PMZ Realty Capital notes that as 2021 draws to a close, the capital markets have responded to the improving hospitality dynamics. “There is currently a lot of capital to be invested in the segment. 2021 will begin to show more stabilized investments as a lot of hotels return to performances similar to 2019. This will cause an increase in permanent and acquisition financing,” he said.
Borrowers will have to be open to more non-traditional lenders going forward. “With the continued consolidation of regional/local banks and their desire to reduce hotel exposure, hotel owners will be forced to look at alternate ways to finance their projects. Most deals in the hotel space will be funded by private debt funds and other non-bank lenders,” said Brent LeBlanc, EVP at Stonehill.
Bridge lenders will be chasing deals where either the cash flow has recovered to pre-COVID numbers and now the sponsor is looking to improve the property with a PIP or re-flag or the sponsor is looking to acquire a hotel with limited cash flow but has a plan for a dramatic value-add and will be bringing plenty of cash/equity and experience, notes Basa.
Lenders will focus on top tier flags – specifically Marriott, Hilton, Hyatt and IHG, as these brands have the strongest reservation systems. Leisure markets are hot and will continue to gather a lot of attention moving forward. They have proven to be resilient and, in some cases, increased in value through the pandemic.
“There is also a bigger pool of buyers on the exit with the top-tier flags. There is more liquidity on both the debt and equity side for these assets. They will also target hotels in diversified markets that are stable or growing. Within the market, they will seek hotels that have a desirable location compared to competitors such as next to major corporate or leisure demand generators,” notes LeBlanc.
