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The Decommoditization of Hotel Financing : What Borrowers , Lenders and Brokers Can Learn from the Pandemic
Prior to the pandemic — and post the Great Recession of 2008 — the hotels sales and financing market saw a period of strong activity and growth . In September of 2019 , Berkadia arranged $ 425 million in financing for the Fairmont Austin , which exemplified the type of transactions that were most sought after at the time — a big , luxury brand hotel in a growing metro with sustained strong performance , owing to its proximity to a bustling convention center . Unfortunately , the onset of the pandemic brought the hospitality market to a near standstill and had us all rethinking the future of hotels . Signature properties like the Fairmont Austin , while still full of long-term potential , had to navigate choppy waters that turned much of what we knew about the hospitality market , and hospitality sales and financing , on its head .
We ’ ve seen the market bounce back in recent quarters , and with it , momentum in sales and financing . Properties like the Fairmont Austin are gathering real steam , and asset level metrics are strong across the hospitality sector .
At the same time , rising inflation and interest rates , coupled with global unrest and the enduring impact of the pandemic , continue to throw curveballs to hospitality investors . We ’ ve been actively working with clients to understand the evolving hospitality landscape and we ’ re keeping in mind a few key lessons from the pandemic as we help our clients navigate the future .
Appreciate the nuances of each opportunity
Prior to the pandemic , the strength of the hotel market sometimes lent itself to the tendency for advisors and investors to brush opportunities with broad strokes — any big , luxury brand hotel in a gateway market appeared to be a good opportunity , whereas any aging efficiency hotel was deemed a less attractive offer . But those old adages have been flipped upside down , with luxury brands in gateway cities requiring deeper scrutiny and aging efficiency properties becoming sought after opportunities for multifamily or affordable conversions . We ’ ve seen this firsthand in our work with clients , both helping them position assets for disposition and in considering assets for acquisition . Our team knows that it ’ s essential to dive into the nuances of every property and opportunity . The key is to analyze and truly understand the value proposition in order to achieve the best outcome .
Different lenders suit different needs
There is no one size fits all in terms of matching the right debt partner to the right hotel financing opportunity . The markets are changing by the minute and relationships
Andy Coleman Senior Managing Director , Head of Berkadia Hotels and Hospitality
matter . Many of the usual suspects remain — debt funds are active in the market ; CMBS and conduit lenders are trying to figure out what makes sense for their bottom lines ; local and regional banks are engaged but cautious . But , what lenders are looking for and how they can best partner with borrowers is evolving as the market evolves . So far this year , we ’ ve seen increasing interest from debt funds moving into the fixed rate space and banks providing very attractive financing terms to strong sponsors . The key is to understand how to match the right opportunity with the right capital provider . Advisors have never been more valuable .
Loan servicing matters
Often in the hotel acquisition process , identifying and closing on the right financing package takes singular focus for borrowers . And while the right financing solution is crucial , once a loan is closed , borrowers begin down a whole new road with their servicer . The significance of this relationship must not be overlooked , and the last two years were stark reminders of the importance of servicing . The pandemic introduced unforeseen challenges and complexity in the loan servicing process that demonstrated how important it is to have strong relationship with , and connection to , your loan servicer . When working with clients , we advocate for a thorough consideration of loan servicers , so that our borrowers have confidence in their success and support for the lifetime of their loan .
There is no “ normal ”
If we ’ ve learned anything from the pandemic , it ’ s that there is no normal — this lesson shapes how we engage with clients and the market in a positive way going forward . Today , we find ourselves in a historic inflation environment and on the cusp of more potential rate raises from the Fed this year . This highlights how nimble , responsive and adaptable investors , lenders and their partners must remain in order to create value in the hospitality sector . Certainly , our work remains guided by our past experiences and deep expertise , but now more than ever flexibility and forward-looking data insights are playing a role in how we help clients assess and understand opportunities .
The hospitality market has always been and remains one that is dynamic and strongly influenced by both broad and nuanced external factors . It ’ s what makes our work exciting , but it also demands that investors , and their partners , bring the highest level of attention , insight and experience to every opportunity . We are proud to work closely with our clients , as a trusted partner , to help them achieve long-term success no matter what the present and future hold .
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