A shift in lender expectations suggests that financiers of US hotels predict the current period of growth in hotel asset values to peak within the next year, according to STR’s 2015 Hotel Lender Survey.
Compared with 15% in 2014, 45% of total survey respondents indicated that the peak will occur within the next year. However, there is as much or even more debt financing capacity available to hotel owners. No respondents anticipate decreased hotel lending volumes during the next 12 months.
Survey responses indicate that lenders see the upper-upscale segment as having the least amount of financing risk. Other key findings from the survey include:
- Urban areas continue to be viewed as the least risky to provide financing for hotels
- Independent, luxury and economy hotels are now considered to carry the most risk
- A US economic slowdown and/or a faltering economic recovery is still seen as the biggest potential threat to existing hotel loan portfolios
- 70% of the respondents expect their overall hotel lending volume to remain constant with the trailing 12 months
- Senior lenders require, on average, a minimum debt yield of 10.2% on underwritten cash flow for an existing hotel
- 60% of lenders expect hotel property values to remain flat over the next 12 months
- Among property classes, economy receives the least amount of interest from lenders who provide construction financing
- More than 80% of self-identified active construction lenders will consider projects that are independent