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having success in closing deals , regardless of the current and prospective interest rate environments . Banks are not coming back to hotel lending as before , but there are many lender types , from insurance companies , CMBS lenders and debt funds , that are filling the void .
Not unexpectedly , what owners can expect varies with asset class , location , newness and condition of property , and current revenue generation . At one end of the spectrum are hotels with all the goods :
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excellent location in desirable growth markets ; relatively new built or recent PIP completed ; easy-to-understand operating model ; and strong in-place cash flow in a market with abundant service talent . Even with more conservative capital right now , if you have what people want , you will have a range of options .
An additional factor that can affect appeal is if there is attractive financing already in place at a favorable rate , much lower than current rates , with some meaningful term left . Many of these loans are with
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the CMBS marketplace and can take time to re-structure , but if the new buyer has the persistence , these loans can sometimes be assumed by new ownership . Of course , many of these existing owners aren ’ t rushing to sell , which provides the luxury of patience .
On the other hand , there are properties facing end of financing that are disadvantaged due to the market they are in ; where CapEx deferral dating all the way back to the pandemic hasn ’ t been remedied ; or there is a less easy to understand hospitality operating model . In such cases , ownership must face the realities of the situation , which may mean taking a haircut from desired valuation or reinvesting into the asset to deleverage and right-size the loan balance , in exchange for more term from their lender to realize their business plan . In today ’ s financing environment , we believe some lenders may need to take back a property and complete a workout to find new ownership .
FIX AND HOLD As described , with the right type of hotel product , there will be financing options as loans mature even with banks out of the marketplace , as insurance companies are stepping into the void . Examples include familiar names like MetLife , AIG , New York Life or MassMutual . The securitized marketplace is robust at present , presenting alternatives to bank lending .
We are advising owners to fix
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a lending rate that is relatively attractive to the market while simultaneously maximizing flexibility on term and other key deal points . By fixing rate on the debt side , while limiting the term , should interest rates begin to fall , there will be financing options . Additionally , the forward-looking SOFR curve does suggest base rates should fall in the next few years , lending merit to floating-rate proposals , but a bet on falling rates feels riskier every day .
Perhaps we were spoiled by an extended period of attractively low interest rates , which undoubtedly masked some poor investment decisions . Now , we are all learning to operate within these newer interest rate boundaries — not loving it , but working with it . As long as developers and owners create and operate attractive properties that appeal to the full spectrum of consumers , there will be robust investment interest in
hospitality product .
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