ROBERTDOUGLAS 2023 HOTEL LENDER SURVEY FINDS LENDERS REMAIN ACTIVE IN THE HOTEL SECTOR
Moderate decrease in credit spreads also anticipated, along with more stringent underwriting criteria.
National Report – February 14, 2023
Real estate investment banking firm RobertDouglas’s Ninth Annual Lender Survey, just released, found that despite rising interest rates, inflation, and recessionary fears, lenders remain active in the hotel sector, with more than two-thirds now implementing more stringent underwriting criteria as a hedge against economic uncertainty. In addition, almost one-third of participants now require interest reserves.
RobertDouglas conducts its annual lender survey to measure the current state of financing market conditions and ascertain critical future expectations through the lens of the specialist hospitality lending community. Providing insights on the metrics most important to lenders in the underwriting, sizing, and pricing of hotel loans, the study includes financing originators from life insurance companies, debt funds, conduit lenders, and banks.
While location and quality of the asset continues to remain the most important “gating” issue for loan requests, cash flow metrics such as debt yield or debt service coverage ratio were a close second. Stephen O’Connor, RobertDouglas Partner and Managing Director, commented, “Although we’re seeing a growing portion of lenders focus on cash flow metrics, debt funds continue to accept a wider range of underwriting metrics to provide liquidity to challenged assets while traditional bank lenders require higher debt yield and DSCR metrics.”
Unsurprisingly, more than three-fourths of lenders surveyed viewed an economic slowdown or external factors as the biggest threats to hotel loan portfolios, consistent with previous years’ surveys. This year, refinancing risk rose in the ranking to the second top concern for lenders, as they begin to plan for loan maturations. Matthew Dower, RobertDouglas Managing Director, noted, “The greatest change to this year’s survey from prior years is that refinancing risk emerged as a top portfolio threat. While it’s great to see hotel lenders remain optimistic and active, today’s increasing borrowing costs and higher exit cap rates are dampening underwriting activity at present.”
Although central banks continue to tighten monetary policy, lenders expect a more stable rate environment in 2023, with flat or moderately tighter senior mortgage spreads. The outlook for 2023 and beyond is cautiously optimistic and signals more liquidity in hotel lending markets over the coming months.
To receive a copy of the Hotel Lender Survey, please contact lendersurvey@robert-douglas.com.
About RobertDouglas
RobertDouglas is a real estate investment banking firm with offices in New York, Los Angeles, San Francisco, Nashville, and Chicago that specializes in the sale, financing, and equity capitalization of hotel, resort, and gaming properties throughout North America. Founded in January 2013 and currently led by its four partners, Rob Stiles, Doug Hercher, Stephen O'Connor, and Evan Hurd, RobertDouglas offers access to exceptional domestic and international institutional investor and lender relationships as it combines the capital markets sophistication of top-tier investment banks with diligent hotel underwriting and proven asset management experience.