HOTEL FINANCING

While it is true that the CMBS meltdown has removed more than $200 billion dollars of capital from the commercial real estate market, some look for a return to normalcy by the end of the year. The residential real estate market does not seem to have that much effect on hotel financing. Big capital seems to be wary of pricing risks, and once someone is ready to “move on” and values are established, things will come back to normal. Some even see the sobering financial markets as a positive development that will help restrain room growth and lead to a stronger and sustainable base for future recovery.

There was some refreshing news from the hotel financing sector at a meeting in May. The recession for the hotel industry should be over by the end of 2008 and things should only get better from there. Everyone seems to regard this as a time of great opportunity if one is careful and has good partners. Some look to profit in note purchases and sales because of better pricing, yields and liquidity. An investor can also look for selective deals where fast action and determination can generate some very favorable results. If you can find the capital, this is a great time in the hotel financing sector because you should be opening into some great markets in 2010 and 2011.

Many investors believe that the coming three to twelve months is the time in the real estate market to begin getting involved in hotel financing. Everyone is still trying to sort through the Wall Street meltdown, but they see opportunities ahead. Interest is strong for both mid-market and upscale brands. However, more people seem to be attracted to the limited services brands which are generally priced under $10 million. Those involved in hotel financing indicate they are less inclined to do deals than several months ago. But there is still money available, with the $10 million and under transaction category being the most active.

One of the facts of hotel financing is that deals above $20 million most often involve two or three lenders. This is one thing that changed with the subprime fallout over the past twelve months. There are instances where smaller banks or community banks couldn’t deal with that risk. You can put together deals wherein you may partner with entities such as the SBA or a large lender such as GE Commercial Finance.

It is important to follow a qualification process when you are involved in hotel financing. You can qualify the potential buyer by obtaining financial statements of involved partners franchisors and brand contacts to check past deals.

Be sure that your paperwork is in order. Make sure the lender has everything he needs to underwrite the transaction. The word here is to be prepared. Have your own materials and be prepared to answer more questions than ever. The hotel financing environment is still tight but now is the time to act. However, you must also be prepared to bring more equity.