The Real Estate Capital Institute®

Hospitality Lending In Full Swing

Capital Markets Comfortable with Lodging Properties


Chicago, IL -- (ReleaseWire) -- 09/22/2006 --It goes without saying that the supply of money is abundant for all property types. Apartment, retail, office and industrial properties are the traditional asset classes favored by most lenders. However over the past two years, the lodging industry has made strong performance gains and recovered from the horrible aftermath of 9/11.

Lenders seeking greater returns and more diversified portfolios are now comfortably financing lodging properties including limited-service, full-service and resorts. Flagged or unflagged properties with solid operating histories readily obtain attractive pricing and terms. Lenders will even allow greater underwriting flexibility in trending room revenues with higher occupancy rates.

What's more, the spreads available for full-leveraged lodging properties are quite competitive. Pricing of 120 basis points over comparable-term treasuries is common. If lower leverage is acceptable, an additional discount exists of up to 20 basis points. Longer-term loans of five years or more, are readily available -- the 10-year term being the most popular. Amortization schedules vary between 20 and 30 years, and even interest-only for lower leverage financings. All in all, these pricing dynamics are historically outstanding and nearly identical to more traditional property types.

On the opposite end of the risk spectrum, new construction and redevelopment lodging funds are more limited. Nevertheless funds are available with pricing starting as low as 200 basis points over LIBOR and can sometimes exceed 400 basis points. Such funding options are typically based on two-year terms with extension options. Fees start at 1%.

The Real Estate Capital Institute's research director, Nat Zvislo, remarks "mortgage spreads and overall pricing have never been more favorable for the hospitality industry as in the past year."

The Institute is a research organization tracking national debt and equity market trends for income properties, including hospitality. Current and historic market data is available at Interest rates are reported throughout each business day -- on an hourly basis -- via the Real Estate Capital Rateline at 7RE-CAPITAL (773-227-4825).