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Hotel Finance Underwriting Grows More Conservative

SAN FRANCISCO-New results of the International Lodging Finance Council show that hotel sector financing is becoming as constrained as in other asset classes.

By Erika Morphy | Updated on May 11, 2008

SAN FRANCISCO-When the capital market crunch began in earnest, the hospitality sector appeared to be the one asset class poised to ride out the troubles with little impact. Embedded growth in cash flows were strong — cash flows were growing at rates higher than inflation – and lenders gave this much credence.

Nine months later the sector is traveling the same difficult path as the rest of the industry, Robert Stiles, EVP with Cushman & Wakefield Sonnenblick Goldman, tells GlobeSt.com. “Lenders are giving no credit for growth, but instead are focusing on in-place cash flows over the last 12 months.” In general, underwriting for hotel finance has gotten tighter, to the point where it is indistinguishable from office and retail.

Stiles is also co-chair, along with Michael Cahill, president and founder of HREC Investment Advisors, of the International Lodging Finance Council. The two presented the findings of the organization’s annual survey of active senior and subordinate hotel lenders at Real Estate Media’s RealShare Hotel Investment & Finance Summit, held in New York City last month. The ILFC survey was completed by 41 active hotel lenders, including Wall Street investment banks, large commercial banks, finance companies and insurance companies.

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