Total $0.00


Fitch Ratings-New York-08 February 2016: Hotel owners will encounter a more challenging debt financing environment during 2016 as lenders respond to the broad repricing of risk (higher) across most debt capital markets and new regulations, says Fitch Ratings. 

'Borrowers can expect higher interest rates and tighter underwriting standards for loans backed by hotel collateral as lenders adapt to more challenging debt capital markets conditions,' said Stephen Boyd, Director of Lodging and REITs at Fitch. 

Sponsor quality will distinguish hotel debt capital access for the balance of this upcycle. 'Unlike loans made earlier in this recovery, lenders can no longer rely on the rising tide of hotel fundamentals to offset poor credit decisions,' said Boyd. 

Basel III regulatory requirements will continue to temper hotel development growth at the margin. Commercial banks have curtailed their development lending activity due to the high capital charges for so-called high-volatility commercial real estate (HVCRE) loans that apply to many highly-levered development loans under Basel III.

However, alternative capital sources will step-in to fill the void. Fitch expects lodging C-Corps. (i.e. brand owners) to increase the pace of their management and franchise (M&F) investments to use their balance sheets to support unit growth, as the cost of development financing increases and availability decreases.

Alternative lenders (i.e. private equity, hedge funds and mortgage REITs) specializing in mezzanine debt and preferred equity will play an increased role in hotel financing this year. Shadow banks are uniquely well positioned to solve hotel financing challenges given their greater flexibility than commercial lenders to take down the entire debt stack and sell off the senior piece of debt while retaining the riskier, higher return mezzanine portion.

About Fitch Ratings

For 100 years, Fitch Ratings has been making the future a little more predictable through independent and prospective credit ratings, commentary and research. Our global expertise draws on local market knowledge and spans the fixed-income universe. The additional context, perspective and insights we provide have helped the world's investors fund a century of growth.

Contact: Alyssa Castelli / +1 (212) 908 0540

Related News

Hospitality Financial Leadership: Bring Multi-Tasking to an End for Hotel Leaders

Hospitality Financial Leadership: Understanding the Importance and Use of The Reserve for Capital Replacement

Hospitality Financial Leadership: The Matching Principle

Hospitality Financial Leadership: The Top 10 Interview Questions About The Hotel's Finances for a General Manager and the Best Answers

Hospitality Financial Leadership: OTA’s and How Hotels Can Best Use Them

Thorofare Capital Provides $17 Million Loan to Refinance Boutique Hotel in Downtown Miami

Hospitality Financial Leadership: Going Down the Road – Part 1

Hospitality Financial Leadership: Expectations vs. Agreements

The History of Financing Boutique Hotels

Hospitality Financial Leadership: What’s Missing With Labor Planning Tools?

Knighthead Funding Originates $8.5 Million Loan to Complete Construction of Holiday Inn & Suites Near Savannah, GA

Hospitality Financial Leadership: Trading Places

Spirides Arranges $7.8 Million Hotel Construction Loan for New Holiday Inn Express in Rock Hill, SC

The Future of Private Equity and Private Markets

Hospitality Financial Leadership: Your Department Managers Really Want to Do Their Monthly Financial Forecasts

Hospitality Financial Leadership: Understanding Liabilities

Thorofare Capital Funds $16 Million Bridge Loan to Refinance Sheraton Silver Spring Hotel in Silver Spring, MD

Hospitality Financial Leadership: Light Bulb Moments

Hospitality Financial Leadership: Educating Our Leaders Is the Highest Form of Service

Hospitality Financial Leadership: Why Hotel Brands and Franchisers Secretly Love the OTAs

All News »

Please login or register to post a comment.