Jones Lang LaSalle Hotels: Hotel debt market commentary March 1, 2010
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Jones Lang LaSalle Hotels: Hotel debt market commentary March 1, 2010
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Catégorie : Monde - Économie du secteur
- Chiffres et études
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Hotels again attracting attention from traditional lenders
The broader recovery in the debt capital markets has begun to extend to hospitality assets. Blacklisted by many lenders for the past 18 months, hotels are once again drawing the attention of the more traditional lending institutions, albeit more slowly than other asset classes.
As mortgage lending builds its reputation as a viable investment based on an improving risk/return profile, traditional lenders have re-entered the space in search of high-quality senior lending opportunities. However, the lack of top-tier deals and the willingness of some insurance companies to issue extremely attractively priced debt have forced many lenders back to the drawing board. This has resulted in compression within the debt markets.
For certain lenders, it makes more sense to originate mortgage debt on high-quality hotels rather than stretch on less attractive office or retail assets or provide higher leverage. Hospitality lending offers better locations, coverage and pricing than most other asset classes right now, and it has caught the attention of both foreign and domestic lenders looking to deploy capital early in the year.
A win-win-win structure
Similarly, pent-up equity capital is rearing to get out of the gates and the dearth of opportunities in the sales market has these capital providers turning to creative hospitality structures. This frequently takes the form of ‘rescue capital’, wherein a new equity provider injects fresh capital into a deal in conjunction with the lender agreeing to re-balance the debt and the borrower agreeing to subordinate their returns.
These recapitalizations can offer a win-win-win situation for the borrower, lender and new equity provider. Distressed borrowers are able to live to fight another day, lenders are able to pay down their exposure while re-structuring the remaining debt according to today’s underwriting, and the new equity gets to deploy capital at attractive returns. A successfully structured recapitalization has the effect of removing the hotel from the distressed asset hot list while keeping both the borrower and the new equity motivated to perform at the highest level.
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