5 things borrowers should know, featuring Matt Mitchell, VP of HSF

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PHOENIX—The hotel industry, and the lending environment in particular, is in a state of transition as many wonder when the cycle will end. But lenders speaking at the recent Hotel News Now Lender Roundtable said that doesn’t have to be a bad thing.

Here are some of their takeaways on the state of the industry.

1. Don’t expect a repeat of last cycle
While we’re likely approaching the peak of the current lodging cycle, Matt Mitchell, VP of Hall Structured Finance, said there are some clear differences between the twilight of this cycle and the last—and that’s a good thing.

“The amount of supply added or in the pipeline this cycle relative to past cycles is not as robust on a relative basis,” he said. “And I think that’s encouraging.”

Michael Watson, director and head of U.S. lending for BMO Harris Bank’s Hotel Finance Group, said that’s particularly true among the lending community.

2. There are still options
Although financing is more difficult to come by now than in 2015, Mike Muir, EVP of hotel lending for Live Oak Bank, said he remains optimistic.

“There’s a lid for every pot,” he said, noting the wide array of lending options that are still available.

Heather Duvall, managing director of Access Point Financial, agreed but noted that relationships are key.

“There’s definitely still lending available in today’s market,” she said. “But one thing we’re seeing is the importance of knowing your lender and their ability to execute.”

She said it’s important for borrowers to not settle on a lender just based on rate, because those lenders can’t always execute on the deal.

3. Lenders expect to keep supply down
Neil Freeman, chairman and CEO of Aries Capital, agreed with Mitchell’s assessment that lenders have learned a lesson from previous cycles. One of those lessons is not to enable the excess of the development community.

“Builders will build if lenders will lend,” he said. “From the lending side, we’re not just throwing money out, and we’ve got a couple more years of quality, select growth in the marketplace and good performance.”

4. Goldilocks zone for lenders
Mitchell said while it’s tempting to look forward to the downturn, everyone should be enjoying this just-right moment for the industry.

“There are a lot of reasons to say we’re in a Goldilocks zone,” he said. “There’s a good balance of supply and demand, and we’re overall optimistic on a market-to-market basis.”

5. Valuations have likely peaked
Freeman and Franklin Lin, director of Deutsche Bank Commercial Real Estate Group, noted that asset valuations hit their highest points in early 2015. They said valuations have likely hit a stabilized—and more realistic—point and seem to be holding steady.

“I would say it’s getting tempered now,” Lin said.

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