Tourism is back, and lenders are eyeing hotels more favorably as a result. In 2010, a record 48.7 million visitors traveled to New York City. These visitors spent approximately $31 billion during their visits to the Big Apple, according to estimates by NYC & Company, the city’s official marketing and tourism organization.
To catch some of those tourist dollars, more than 36 hotels opened in New York last year. In addition, there are at least 26 new hotels in line for construction.
Concurrently, financing for the hospitality asset class — which was in the doghouse with lenders just a few years ago, ranking as their least favored sector — has improved for both hotel owners and developers.
Money-center banks, which include Bank of America, Merrill Lynch, Capital One, CIBC, HSBC, M & T Bank and Wells Fargo, are entertaining the idea of providing both construction and permanent financing for the hospitality market.
For example, a consortium of four banks led by Wells Fargo/Wachovia has committed to providing a $180 million construction loan for Harry Gross’s 70-floor, mixed-use tower on Broadway and 54th Street. The tower is expected to include four floors of retail and two hotels: a Marriott Courtyard Hotel on the lower floors and a Marriott Residence Inn on the upper floors.
Jason Lipiec, who as vice president and group manager at M & T is responsible for hospitality financing, said on my television show that M & T continues to seek opportunities to finance established hospitality operators. Presently, the group is providing construction loans for a number of new hotels in Midtown as well as a ground-up boutique hotel in Union Square. “The developer will need to have 30 to 50 percent of the cost of the project for the bank to entertain a financing request,” noted Lipiec.
GFI Capital Resources, the developer of the 260-room Ace Hotel on 29th and Broadway, has begun construction on the 160-room NoMad Hotel at Broadway and 28th. According to the trade, a money-center lender is interested in providing construction financing. (HSBC provided construction financing for the Ace, which opened in 2010.)
The banks are providing acquisition financing as well. And on the development front, some deals have several banks interested. In January, Choice Hotels International announced two development contracts for Manhattan’s first Cambria Suites Hotel. One of the projects is the 194-suite Cambria Hotel, which will be built in Times Square on 46th Street by Gary Barnett’s Extell Development Company. Choice is making an equity investment in the project, and the combination of the financial strength of the developer and the hotel chain has resulted in many local lenders expressing interest in providing construction financing.
Meanwhile, as The Real Deal has reported, commercial mortgage-backed securities financing has also returned. That’s a reverse from a year ago — at the onset of 2010, little or no CMBS financing was available for the hospitality industry. “CMBS financing returned at the end of 2010, and we expect billions of dollars of financing for the hospitality industry this year,” said JPMorgan’s Michael Sarkozi.
In February, the Morgan Stanley Capital I Trust, 2011 C 1, sold $1.54 billion in CMBS financing. That provided a $92.5 million loan to Sunstone Hotel Investors on its 460-room Hilton Times Square. The 10-year fixed-rate loan, which carries an interest rate of 4.97 percent, was secured through Bank of America Merrill Lynch and used to refinance the existing loan, which was set to mature in December.
Publicly traded mortgage real estate investment trusts have also provided financing to the hospitality industry. One of the most active REITS in this arena is Starwood Property Trust, which originates and structures senior and subordinate debt investments.
Starwood has funded some deals in the metro region, but many of its big deals have been national. Last year, it was the lead lender in the origination of a $138 million hotel renovation loan for the Hyatt Regency New Orleans. The loan, which matures in 2016, bears an 11 percent annual interest rate. Also last year, Starwood provided an $18 million first mortgage for a boutique hotel in Laguna Beach, Calif., and a $74 million first mortgage on 17 extended-stay hotels in five states.
A few years ago, foreign lenders also served as a source of financing for hotel construction. This year, many of these lenders, especially the Irish and German banks, have announced that they are no longer considering financing this asset class. Taking the place of these lenders are a number of French commercial banks that plan to finance four- and five-star hotels in major U.S. cities.
With lenders returning to the marketplace, the outlook is getting brighter for hospitality assets.