Hotel Financing News
Non-recourse CMBS Conduit loans
There have been no changes in this market as the margins seem to be generically around 2.4% to 2.75% over the 10 year Swap rate (3.10% as of today) for hotels with Debt Yield of about 12%, Debt Coverage Ratio of about 1.6, Loan to Value of about 65%, and trailing 12 RevPar index of over 100% . In spite of the expectations to see a decline in the Swap rate during the Summer, the index has held its position at high 2% to low 3% and with the upcoming Fed tapering, one would not expect to see this index drop in the future. It may be a good chance now to finance in the mid to high 5% range with this type of loan for the next 10 years. For more reading on this type of loan, go to http://www.scicap.com/hotel-cmbs-conduit-loans.html
SBA 504 Green
Continues to be the preferred solution if the SBA allocation is already exhausted. This program can only be used for acquisition and is a fairly cumbersome and costly process as in most cases, the borrower has to come up with the cost of the energy efficient systems such as solar panels generally expected to be over 150K. This program can theoretically be structured to purchase an 18 million dollar hotel with 9 million of first loan (50%) , 5.5 million of second loan (30%), and 3.5 million of equity injection (20%).
SBA 504 Refinance
This program was part of the Jobs Act and has expired but Senator Landrieu is proposing to extend it for five years under the Senate Bill S.289 called the CREED act. It may not have a chance to get enacted but you may keep track on http://www.govtrack.us/congress/bills/113/s289#
These loans have not had a come back yet specially in the hospitality market. The secondary market has remained closed for the hotel assets and this means that the appetite for the lenders are remaining low. It is customary to see hesitance in obtaining these loans at any Loan to Value over 60 to 65% and unpredictable results even at these low LTVs.
Financing on projection basis
The lending market is still hesitant financing hotels on projection basis. It appears that even though construction financing is a type of projection based financing, it is easier to obtain than a turn around scenario of an existing hotel that will be projected to debt service for the new loan. With the hotel supply remaining stagnant and the demand increasing, the lenders are more open to examine a construction proposal but still require liquid borrowers with outside global cash flow to guarantee success during the stabilization period.
New Market Tax Credit
I was contacted by a lodging magazine on this subject recently and it appears that there are interest in this program. In this program, the lender cannot place a direct lien on the hotel (on the real estate) and is unable to foreclose the hotel during the period the tax benefits are being realized, a major reason why the lenders shy away from this program. Only two or three major lenders in the country deal with this program and handle nearly 80% of these loans in the US but unfortunately they are not hotel lenders unless it is an extremely attractive project.
Very attractive at first glance specially to finance construction projects, but the downside is the length of time it takes to physically receive the funds. Since the minimum requirement for a green card is 500K, on a larger project, it takes the participation of multiple immigrants to make the project happen. Generally one would expect 18 months from the start to the time the funds are available. There are considerable upfront costs for going through the process as well, albeit it is less than what generally costs to obtain an SBA loan.
for further questions and discussions, please reach Ramin Mostaan at (949) 477 5000 or email@example.com