December Hospitality Capital Markets Updates

Expect hospitality lenders to consider more boutique and independent hotels throughout 2018 as consumers tend to be leaning more towards this property type as they look for unique experiences, especially the millennials.

 

Banks:

Leverage will be the main pain point for borrowers with leverage topping out around 65% for senior debt. Rates will fall between 4.5% - 4.75% and banks will be looking for DSCR north of 1.40x.

 

CMBS:

All the major CMBS lenders will be active in the hospitality space. However, leverage will be tapped out at 65% with lenders looking for debt yields north of 12%. 10-year fixed rate money will be in the high 4’s to low 5’s.

 

Private Debt Funds:

The private debt funds will be the “go to place” when looking for leverage in 2018. Expect leverage to reach 75 – 80%, with rates between 6-9%. Ground-up construction financing will be considered by a number of these private debt sources.

 

Life Insurance Companies:

The life insurance companies will be active throughout 2018. Their focus will be on larger, full-service hotels in major metros. Expect leverage to be conservative with the life insurance companies maxing out around 55% LTV.

 

Construction:

Expect all lenders to be cautious when considering ground-up construction opportunities. Lenders will scrutinize the current development pipeline for new product coming on the market. Due to increased supply in most markets, lenders will underwrite longer stabilization timeframes. Banks will max-out at 60% LTC and borrowers will need to consider mezzanine or preferred equity to obtain maximum leverage. Private debt funds will fill the gap for new construction and transitional assets leveraging up to 80% LTC.