Hotel Lender 2017 Outlook ‘Cautious’

Most hotel lenders have a “cautious” outlook for the hotel lending environment in 2017, reported STR, Hendersonville, Tenn. 

“Over the four years we have surveyed lenders, there has been a clear sentiment shift in their views of the industry from confident to cautious,” said STR Vice President of Consulting and Analytics Stephen Hennis. “Most lenders believe that asset values have peaked and are concerned about the economic outlook.”

STR surveyed more than 40 senior balance sheet lenders, senior commercial mortgage-backed securities/conduit lenders and subordinate debt financing providers. The participating lenders provided most of the hotel debt originated in the U.S. in 2016. 

More than half of respondents (54 percent) predicted hotel values will be flat in the next 12 months, and 41 percent anticipate that values will decrease in the next 12 months. But nearly 60 percent of lender respondents said they expect the overall hotel lending volume of the next 12 months will remain consistent with the previous 12 months.

For the third consecutive year, lender respondents cited the potential for a slowdown and/or faltering general macroeconomic recovery as the most feared threat to their hotel loan portfolio, STR said.

Other key survey findings:

–None of the surveyed lenders believe hotel values will increase significantly in the next 12 months.

–More than two-thirds of lenders expect senior mortgage credit spreads to widen in 2017.

–Half of surveyed lenders indicated that location and quality of real estate is the single most important “gating” criteria for financing requests.

–Urban areas continue to be viewed as the least risky to provide financing for hotels. Economy, independent and luxury hotels products carry the most financing risk, respondents said. Senior lenders require an average minimum debt yield 10.0 percent on underwritten cash flow for an existing hotel.

–Among property classes, economy hotels receive the least amount of interest from lenders who provide construction financing.

–While less than one-third of all lenders surveyed would consider any kind of construction financing, among those that would, no lender indicated that it would accept less than 50 percent repayment recourse.