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Friday, May 02, 2008

Hotel Financing: 55% LTV

by Calculated Risk on 5/02/2008 09:37:00 PM

This week I spoke with Jim Butler of the law firm Jeffer, Mangels, Butler & Marmaro about the state of hotel financing. Jim hosts a conference every year called Meet the Money® devoted to hotel finance that brings together hotel developers/investors and providers of debt and equity capital.

On the recent change in lending standards, Jim told me:

The liquidity crunch has greatly reduced capital availability for hospitality projects, but money still is available from more traditional (portfolio lending) sources, where the projects make sense and there is great sponsorship. But capital providers and consumers are having greater difficulty finding one another, and underwriting criteria are much tougher. LTVs have come down from 85-90% last summer to something closer to 50-55%, with mezz debt adding a little more leverage but at much greater cost than last year.
emphasis added
Imagine the housing market with 55% LTV for homes!

Non-Residential Investment vs. Lodging Click on graph for larger image.

This graph shows the strong growth in lodging in recent years (from the BEA supplemental tables)

With these tighter lending standards (and lower LTV loans), 2008 will probably be a tough year for hospitality development domestically.

Jim also told me that international growth is much stronger than domestic right now. This is similar to many other industries, and this raises the question of decoupling and recoupling of the U.S. and global economies - right now growth internationally is cushioning the U.S. slowdown.

For anyone interested, Jim writes a blog on hotel legal issues with the original title: Hotel Law Blog