28 May 2013
By Patrick Mayock

Story Highlights

  • There’s an abundance of capital sources in the hotel industry, said Andrew Coleman of Walker & Dunlop.
  • The easiest deals to get done are for stabilized assets, Coleman said.
  • A select-service hotel is twice as easy to finance as a full-service property, said Bob Sonnenblick of Sonnenblick Development


WASHINGTON, D.C. – Panelists speaking during last month’s Bisnow Lodging Investment Summit painted a rosy picture of the hotel lending environment. Capital sources were described as “abundant,” CMBS was said to be back at nearly full steam and financing in general was called “attractive” during several different sess1ons.

“There’s an abundance of capital back in the market- conduit lenders, life insurance lenders, banks, specialty lenders, you name it,” said Andrew Coleman, senior VP at Walker & Dunlop, during a panel titled “Hotel deals are getting done.”

The above sources are actively financing properties in primary markets, but many of the institutional, life insurance lenders are more hesitant in secondary and tertiary locations, he said.

The easiest deals to get done are for stabilized assets, Coleman added.

Fueling the recovery in hotel debt financing is the higher yields available at the asset level, said Warren de Haan, chief originations officer and managing director at Starwood Property Trust.

Life companies have huge allocations and their costs of funds are low, and banks are at all-time lows for percentage of loans to deposits. At the same time, there’s a huge demand for fixed -income product, “so naturally people are going to chase mortgage product,” he said.

More than a year ago, conduit lenders were offering 65% LTV with 12 debt yield at 4.25% cost of funds, de Haan said. Today, those costs of funds are slightly lower. Coleman said he’s also seen a reemergence of local and regional banks that are willing to listen to a good story. “12 months ago nobody wanted to hear a story… They’re now listening to those stories.”

Speaking during a “Hotel development roundtable,” Bob Sonnenblick, chairman of Sonnenblick Development, offered the following rule of thumb for construction loans: 50% of cost on a non-recourse basis, Libor slightly more than 1 and ton of equity is required in every deal.

Select service sizzling Sonnenblick also said it is twice as easy to finance a select-service hotel as it is a full-service property.