In terms of strategy, Davies cast a wide net to attract the right lender for the project. “The key is to cast a wide net in the current lender market. On the Montage/Pendry project, we went to more than 250 capital sources and spent several years assembling the right financing in order to ensure its execution,” says Davies. “This is the level of dedication today's lenders are looking for.” In the end, he secured a three-year senior construction loan through an affiliate of Mosaic Real Estate Investors.

While hotel construction deals are difficult, lenders are more bullish on industrial and multifamily deals. These two markets are the darlings of commercial real estate with strong fundamentals and are risk averse, according to Davies. “For example, on the industrial front, vacancy throughout the U.S. reached a historic low of 4.3% by the end of 2018,” he explains. “With vacancy declining and rents rising, lenders will begin seeking opportunities to finance new construction in well-located markets with strong demand.”

Still, Davies says that outside of these deals, lenders have options to secure construction funding. “The bottom line is, there are a range of options depending on risk profile and leverage,” says Davies. “We advise owners and developers in the hospitality sector to be prepared for a minimum of a 15% capital outlay up front, and often that can rise upwards to as high as 45% depending on the risk profile of the sponsor.”