2013 HOTEL LENDER SURVEY OVERVIEW
STR, Hotel News Now, and RobertDouglas conducted a survey of senior balance sheet lenders, CMBS lenders and providers of subordinate debt financing to measure the current state of financing market conditions and ascertain critical future expectations through the lens of the specialist hospitality lending community. More than 50 lenders participated in this inaugural survey – together representing the source of more than 75% of all hotel debt with loan balances in excess of $10 million that was originated in the U.S. in 2013.
Overall, the survey results suggest an optimistic outlook of stable to growing asset values, stable to increasing liquidity for hotel finance and potentially tightening risk spreads – all in an environment with underlying expectations of moderate interest rate increases. Not a single lender surveyed believes hotel values are set to decline in the next 12 months. More than 90% of respondents anticipate values to increase in the next 12 months.
In light of this outlook, lenders generally expect to originate more hotel debt in 2014 than in 2013. However, more than two-thirds of respondents anticipate this will be in a rising interest rate environment. About half of respondents raised the concern of a general economic slowdown or faltering in the current recovery. Lenders appear comfortable with where the industry is headed but nearly half raised concern about the current risk/reward relationship of debt positions.
The survey highlights the metrics most important to lenders in underwriting, sizing and pricing hotel loans. Of these, according to approximately 70% of respondents, debt yield is the single most important metric to determine loan size. The maximum loan-to-value ratio underwritten by senior lenders for existing assets averaged 69.5%, with responses ranging broadly from 60.0% to 85.0%. Subordinate lenders showed a willingness to underwrite loans as high as 90.0% loan-to-value but averaged 75.8%. For construction lending, loan-to-value averaged 67.5% but spanned as high as 75.0%.
The most important gating issues for lenders in considering a hotel finance request include in-place cash flow, and the location and quality of collateral. Most of the risk in the lodging industry is perceived in the lower tier of hotel classes, particularly economy and midscale products. The upper upscale segment appears to have the least amount of risk, according to lenders. Likewise, hotels in urban locations have the lowest perceived risk, according to the survey results. Hence, the appetite for construction lending appears to be most focused on upper upscale and urban hotel projects.
To order a copy of the Hotel Lender Survey, or participate in future surveys, please contact concierge@stranalytics.com.