Hotel lender survey suggests cautious outlook for 2017

HENDERSONVILLE, Tennessee, and NEW YORK -- A majority of hotel lenders expressed a cautious outlook for the hotel lending environment in 2017, according to the year-end release of the 2016 Hotel Lender Survey.

The fourth-annual survey, conducted by STR, Hotel News Now and RobertDouglas, includes responses from more than 40 senior balance sheet lenders, senior CMBS/conduit lenders and providers of subordinate debt financing. Together, the participating lenders represent the source of the majority of all hotel debt originating in the U.S. in 2016, with loan balances in excess of US$10 million.

"Over the four years we have surveyed lenders, there has been a clear sentiment shift in their views of the industry from confident to cautious," said Stephen Hennis, STR's VP of consulting and analytics. "Most lenders believe that asset values have peaked and are concerned about the economic outlook."

Key findings from the survey include:

• None of the surveyed lenders believe hotel values will increase significantly in the next 12 months.
• 54% of respondents predicted that hotel values will be flat in the next 12 months, and 41% of respondents anticipate values to decrease in the next 12 months.
• 59% of lender respondents expect the overall hotel lending volume of the next 12 months to remain consistent with the previous 12 months.
• More than two-thirds of lenders expect senior mortgage credit spreads to widen in 2017.
• Exactly half of the surveyed lenders indicated that location and quality of real estate is the single most important "gating" criteria for financing requests.
• For the third consecutive year, lender respondents cited the potential for a slowdown and/or faltering general macroeconomic recovery as the most feared threat to their hotel loan portfolio.
• Urban areas continue to be viewed as the least risky to provide financing for hotels.
• Economy, Independent and Luxury products are considered to carry the most financing risk.
• Senior lenders require, on average, a minimum debt yield of 10.0% on underwritten cash flow for an existing hotel.
• Among property classes, Economy receives the least amount of interest from lenders who provide construction financing.
• While less than one-third of all lenders surveyed will consider any kind of construction financing, among those that will finance construction, no lender indicated that they would accept less than 50% repayment recourse.