Hotel Debt Rebounding In New England

BOSTON — Yes, New England,
there is a financing source for
hotels, according to Fantini &
Gorga, but the mortgage banking
firm’s latest lender survey and
recent experience arranging loans
in the hospitality arena suggests
that only the strongest operations
need apply.
“We are seeing things loosen,
but it is limited good news,” relays
Fantini & Gorga principal Tim O’Donnell. To gain viable terms, “you need
a top flag and low leverage,” he says. That
and other attributes were in place for
O’Donnell and company Chairman George
J. Fantini Jr. to arrange
a $39.7 million refinancing
earlier this year on
behalf of the Radisson
Hotel in Boston.
According to O’Donnell,
“there was intense competition”
among
lenders, with RBS
Citizens ultimately winning
the day. The
Radisson at 200 Stuart
St. is “an irreplaceable
location” that benefits
from a 750-vehicle
garage servicing the
parking-bereft Theater
District and Chinatown
areas, says O’Donnell, calling that aspect “a
real plus” as a revenue enhancer. The
hotel’s solid operating history, market position,
and “highly skilled sponsorship” also
helped create “an attractively priced, wellstructured
loan that met the borrower’s
requirements nicely,” explains O’Donnell.
Operated by JPA Management, an affiliate
of the Radisson Hotel Boston’s original
developer and long-term owner, the
23-story, 358-room hotel includes meeting
and function space, two restaurants and a
480-seat cinema, the Stuart Street
Playhouse. Fantini & Gorga’s placement
occurred just as the lending community
was slowly accepting hotels as an asset
class to pursue after two years of having
“the spigot shut off.” During Fantini &
Gorga’s first survey of 2010, none of the
insurance companies interviewed were
lending on hotels, whereas a minority of
the banks surveyed were so inclined. In
the new survey, however, three of the 11
insurers and six of 11 banks indicated a
willingness to service hotel owners.
The terms in many cases remain stringent,
and O’Donnell stresses that hotels
sporting secondary locations and
unproven histories will find the debt
pipeline virtually inaccessible. That cautious
approach is in direct opposite to the
rising tide of interest among equity players
to take advantage of a stabilizing hospitality
industry. “The smart money is
looking at hotels,” says O’Donnell. “There
is a lot of equity, but the debt (availability)
is still cautious and pretty restrictive.”
Even so, O’Donnell notes there are signs
that the hotel market is finally on the
mend, and that should ultimately bring
more debt into play, offering cautious
optimism that the Fantini & Gorga survey
in early 2011 will reflect that sentiment.
“It seems to be going in the right direction,”
he says.
Save for a lender in the “other” category
willing to do interest only loans up to 90
percent LTV, banks and insurers in the
Fantini & Gorga survey show they are
keeping LTV’s for hotels capped at 75 percent,
and more often in the 65 percent
range. Pricing spreads in some instances
are running at 300 to 400 basis points.
Comparatively, one lender in that range
was pricing apartments, office and retail
at 200 to 250 basis points.