While lenders appear to be in lockdown mode for every other type of commercial real estate, they seem to be more willing to open the vault for established upscale hotels. Financial services firms believe that charm can be extended to new projects, depending on where they are located across the country.
"It's just a pure flight to quality in this market," says Andrew Colman, vice president with Walker & Dunlop in Bethesda, MD, whose Hotel Finance Group has arranged more than $300 million in loans to hotel development and management companies over the past year and a half. The volume of transactions in the luxury hotel market is double its normal level, rising from 25% to 50% this year, he says.
Walker & Dunlop's latest transaction is a $65-million refinancing for the Ritz-Carlton Philadelphia, which the firm says is based on the hotel's brand, strong asset quality and exemplary owner sponsorship. Miami-based Gencom Group owns the 303-room, full-service luxury hotel that is designed to resemble Center City landmarks related to the nation's birthplace.
Whether that translates to new projects remains to be seen. For example, New York-based Carlton Advisory Services is working with developers of a proposed 225-room Waldorf-Astoria hotel in Sarasota, FL, to get $100 million in bridge financing for land acquisition and pre-development costs. Lion's Gate Development and Hilton Hotels Corp. are advancing the 18-story hotel as part of a planned $1-billion mixed-use project called the Proscenium in Downtown Sarasota.
Financing for luxury hotels can be difficult because of their size, though not impossible even in the current credit-squeezed environment, says Kenneth Herzberg, director with Carlton Advisory. Even upscale condominium units, which banks might not touch at normal pricing levels, are favorable if they have a hotel's brand attached, he says.
"We have some significant interest from some groups," Herzberg says. "It's a combination of the brand, the sponsorship and how it's presented, and the overall valuation of the project at the end of the day. If it's a top label and it appeals to folks on the upper end of the scale, and it has a branded residential component, it's going to make a deal a lot easier."
Other luxury hotel brands such as JW Marriott, Renaissance and Grand Hyatt are still able to get financing at good terms, according to Colman, whose family has a lengthy history in the hotel industry. Now that commercial mortgage-backed securities have gone from abundant to extinct in just the past year, hotel financing is now driven more by who and what owners and developers know.
"My relationships take on increasing value," Colman says. "Even if it's a great deal, it's still tough, but they are getting done."
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