Leverage for hotel CMBS loans is currently available in the 55% +/- LTV range as lenders are beginning to close hospitality loans prior to the full return of cash flow. They are using the same forward-looking underwriting tactics that were prevalent in The Great Recession recovery in 2010/2011. Given the low default rate (prior to Covid-19) on 2010/2011 vintage hotel loans, there is a successful precedent for the strategy and a consensus among lenders and rating agencies that most underwriting mistakes are made later in the business cycle as earnings peak and lender competition and new supply heat up.
Leverage will gradually increase to 65% by the end of the year as hotel cash flows begin to normalize on a current run rate basis and strong, identifiable, positive year-over-year RevPAR trends make it easier to underwrite partial pro forma loans with confidence.
All-in rates for 10-year hotel CMBS loans are currently in the mid- to high-4% range. With more favored asset classes like multi-family able to secure financing in the low-3% range, lenders are viewing hospitality loans with an opportunistic eye. As the year progresses and underwriting relies less on pro forma, and more on “actual” results, we expect rates to drop to the low 4% range along with the previously mentioned increase in leverage. Lower leverage requests later in the year will break below 4% once again.
Leverage for hotel CMBS loans is currently available in the 55% +/- LTV range as lenders are beginning to close hospitality loans prior to the full return of cash flow. They are using the same forward-looking underwriting tactics that were prevalent in The Great Recession recovery in 2010/2011. Given the low default rate (prior to Covid-19) on 2010/2011 vintage hotel loans, there is a successful precedent for the strategy and a consensus among lenders and rating agencies that most underwriting mistakes are made later in the business cycle as earnings peak and lender competition and new supply heat up.