HOTEL CONSTRUCTION LOANS

The hotel construction industry is alive and doing very well despite the turmoil in the rest of the economy. The hotel industry has maintained a 24% year-to-year increase in the number of rooms under construction and a 74% increase in the number of rooms opened. The number of rooms under construction climbed from 13,341 in 2006 to 16,495 in 2007. The number of rooms opened in 2007 soared to 5,668 as compared to 3,265 in 2006. It is a good time to obtain a construction loan.

The new construction is a matter of economics. The news is that the price for existing hotels has reached the point that builders would rather buy land and build today than to buy a hotel that is 20 to 30 years old. It makes more sense to obtain a hotel construction loan and build your own project.

Even in today’s economic climate, hotel construction loans are available and those who are building and financing them see a bright, long range future for the hotel industry. It is especially viable in California. Despite the looming recession, those who have the capacity to develop are gearing up to do a lot more. Financing is readily available because the funding for hotel construction generally comes from local banks that offer hotel constructions loans tied to prime – which has been decreasing lately. Since CMBS lenders don’t lend on new construction, the problems in the CMBS market do not affect investors seeking hotel construction loans.

Lenders are willing to finance hotel construction loans because the hotel market is still robust. Most all markets showed an increase over the previous year and those that were down were only down by about 2 percentage points. Part of the equation is that hotel developers have benefited from the slowdown in the housing market that has led to lower labor and material costs for the industry.

Another issue to consider is the fact that the number of hotel rooms being built is getting closer to the number being planned. Typically, far more hotel rooms are planned than are ever built. The number of rooms built as compared to the number of rooms planned has increased from 10% to almost 20%. The industry expects that the number of rooms under construction as compared to the number of rooms planned will show a more consistent pattern over the next few years. Although there will always be a gap between planning and actual construction, the gap is narrowing. This will help settle the market as far as hotel construction loans are concerned.

The increasing number of first class and luxury hotel construction projects is a result of a growth in worldwide tourism. There has been an increase in new large hotel projects in nearly all important business and leisure destinations. In North America, the number of luxury hotels is expected to increase by 16% and the number of first class hotels will rise by 4%. There is an expected 7% growth of leading hotel projects worldwide. Now is a good time to seek a hotel construction loan.