Debt capital will remain widely available for hotel properties--even for construction loans, according to Fitch Ratings, New York, [paragraph] "Secured property-level mortgage lenders are constructive on hotel collateral, given higher yields/returns relative to other commercial property types," said Fitch Analyst Stephen Boyd in a special report on hotel underwriting. "Balance-sheet lenders across the size spectrum are lending for hotel acquisition, refinancing and--increasingly--new construction."
Boyd said hotel collateral is also viable in the commercial mortgage-backed securities (CMBS) market. "Lender and investor appetites are healthy for fixed-rate conduit loans, as well as large loan/single-borrower transactions. The pool of CMBS investors has expanded, particularly for AAA-rated paper," he said.
Lenders have generally loosened debt-service coverage and loan-to-value (LTV) ratio requirements to achieve higher yields amid heavy lending competition, Fitch said. "Higher assumed property values (e.g., lower cap rates) and more interest-only loans with lower debt-service coverage understate the amount of deterioration in issuer-underwritten LTVs and DSCRs [debt-service coverage ratios] within Fitch-rated U.S. CMBS conduits. Debt yields and Fitch stressed credit metrics, which are not impacted by these factors, have weakened markedly."
Fitch said it expects loan structure to steadily weaken "for the balance of this up-cycle" as lending competition intensifies. "Interest-only and partial interest only loans are increasingly common. Lenders remain focused on cash management; however, terms have generally been loosened--such as with more springing sweeps with lower coverage triggers."
But lenders hold firm on key structural elements, such...