Life-insurance companies and CMBS sources are the primary lenders for long-term fixed-rate debt for stabilized hotel properties. The life-insurance-company sources are focused on top-branded properties in core markets only and limiting proceeds to between 50% to 60% LTV maximum. CMBS is still active in the hotel-lending space, but has come under fire by the rating agencies and bond buyers over the past year, who are citing a market top in performance metrics, and thereby forcing more stringent underwriting with debt yield and rating-agency models driving loan proceeds. CMBS sources are now topping out at 70% LTV, with a few exceptions.

GlobeSt.com: What are lenders' views on this market, and how eager are they to lend for hotels here?

Fowler: The OC market is seen very favorably. Obviously, it depends on the specific submarket that the property is located in. Key factors will include location, demand and supply characteristics, brand and borrower experience. All of these factors will weigh heavily in a lender's decision to lend in any market, including the OC.

GlobeSt.com: How does the OC market compare to other Southern California markets in regard to hotel financing?

Fowler: It's on par with other key metropolitan submarkets, including L.A. and San Diego.

GlobeSt.com: What else should our readers know about hotel financing?

Fowler: The market for hotel debt is very dynamic at present. Borrowers should reach out to an experienced intermediary that specializes in hotel financing and who has the capital-source relationships that understand hotel financing.

IRVINE, CA—The appetite for lending on hotels in general has cooled over the past year, and focus on top-branded product in core markets with experienced operators is now more important than ever, HFF's co-head of hospitality debt James Fowler tells GlobeSt.com. As we recently reported, the firm has closed the sale of and arranged $55 million in acquisition financing for the Hilton Irvine/Orange County Airport, a 306-room, full-service Hilton hotel in Orange County's business and retail district here. We spoke exclusively with Fowler about the trends he is noticing on Orange County's hotel-financing arena, how lenders view this market and how it compares to other Southern California hotel markets.

GlobeSt.com: What trends are you noticing in financing for the Orange County hotel market?

Fowler: The trends in hotel financing for the OC hotel market are tracking the global financing trends seen in other primary markets. The appetite for lending on hotels in general has cooled over the past year, and focus on top-branded product in core markets with experienced operators is now more critical than ever. Most of the submarkets in the OC are considered primary in nature, and lenders are still willing to lend, but capital is becoming more conservative and selective for hotels. Ground-up-construction financing is the most difficult capital to obtain, since the lending community is concerned about funding new construction into the latter stages of this market cycle. Even the most experienced and deep-pocketed hotel developers are finding their go-to bank sources tightening up underwriting standards and offering lower levels of leverage, while some have completely withdrawn from the market for this product type.

As banks retreat from this space, developers are forced to accept lower leverage and higher cost-of-capital alternatives. Debt funds are filling the gap in the bridge-lending space, providing capital for investors to acquire, re-brand and/or renovate existing product. Again, brand, location and experience are of key importance, along with the viability of the business plan, with a keen focus on supply-and-demand factors.

Life-insurance companies and CMBS sources are the primary lenders for long-term fixed-rate debt for stabilized hotel properties. The life-insurance-company sources are focused on top-branded properties in core markets only and limiting proceeds to between 50% to 60% LTV maximum. CMBS is still active in the hotel-lending space, but has come under fire by the rating agencies and bond buyers over the past year, who are citing a market top in performance metrics, and thereby forcing more stringent underwriting with debt yield and rating-agency models driving loan proceeds. CMBS sources are now topping out at 70% LTV, with a few exceptions.

GlobeSt.com: What are lenders' views on this market, and how eager are they to lend for hotels here?

Fowler: The OC market is seen very favorably. Obviously, it depends on the specific submarket that the property is located in. Key factors will include location, demand and supply characteristics, brand and borrower experience. All of these factors will weigh heavily in a lender's decision to lend in any market, including the OC.

GlobeSt.com: How does the OC market compare to other Southern California markets in regard to hotel financing?

Fowler: It's on par with other key metropolitan submarkets, including L.A. and San Diego.

GlobeSt.com: What else should our readers know about hotel financing?

Fowler: The market for hotel debt is very dynamic at present. Borrowers should reach out to an experienced intermediary that specializes in hotel financing and who has the capital-source relationships that understand hotel financing.