Hotel Debt Market Commentary from Jones Lang LaSalle Hotels
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Hotel Debt Market Commentary from Jones Lang LaSalle Hotels
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Category: Worldwide - Industry economy
- Figures / Studies
This is a press release selected by our editorial committee and published online for free on 2009-10-23
Quicker access to servicers
While news headlines have been focused on the "new" CMBS market with the potential first TALF deal (a $400 million loan from Goldman Sachs to retail REIT Developers Diversified Realty Corp.) and the continual tightening of spreads in the secondary CMBS market over the past month, the real news for hotel owners is in the "old" CMBS market. Namely, the recent changes to REMIC law that empower master servicers to address problems they see on the horizon at an earlier date. Before the changes, a loan needed to be transferred to special servicing before it could get workout attention, which usually occurred only two to three months prior to maturity or default. Now, borrowers are able to approach their lenders well in advance and begin negotiating a solution that allows both lender and borrower to recoup additional value.
Servicers request comprehensive strategic plans before taking action
The concern in the market was that these changes would open the doors for borrowers to flood servicers with modification and extension requests, further burying the already swamped servicers. Feedback from servicers is that this has not yet been the case, but rather it has given servicers time to direct borrowers to develop comprehensive strategic plans that illustrate the financing and disposition difficulties in the market specific to their asset, and develop well thought out business plans that address impending issues. Jones Lang LaSalle is currently working with several hotel owners to assist them in this process. The key to getting a swift, positive response is to arm the servicer with the information they need to take action, which usually includes a broker's opinion of value, data points from the debt markets, and a clear operational plan.
Hotel lending remains weak; focus on strategic restructuring for now
While balance sheet lending on office, retail and multi-family assets is officially in swing (albeit with far fewer players at this time) and CMBS is showing signs of reawakening, widespread hotel lending remains a future hope. Top-shelf hotel deals can get financed at low leverages and with pricing in the 8% to 9% range, but the majority of hospitality assets have too much "hair" for lenders right now. As a result, leverage right now means maintaining what you have. Working with your lender to strategically restructure is the key to being in a position to capture the expected recovery in the travel industry.
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