DALLAS—It’s already been a big year for Dallas-based HALL Structured Finance (HSF). The lender has closed nearly $100 million in new construction loans this year and has an additional $193 million in the closing process, and their pipeline for the remainder of the year looks very promising.

HSF was also listed by Real Capital Analytics (RCA) as the top non-bank hotel construction lender in the US in 2018. RCA also placed the lender ninth among the largest hotel construction lenders overall, including both bank and non-bank lending sources in the US. In an exclusive interview, discusses what’s coming next with HSF president Mike Jaynes. Mike, let’s talk about the RCA ranking first.

Mike Jaynes: It was very exciting to see. In today’s lending climate, it’s very difficult for borrowers to obtain construction financing for hotels through traditional banks. In light of this, HSF stepped up its lending capacity to fill this void, and we’re glad to be able to help high quality, well-conceived projects across the US move forward. What does your 2019 pipeline look like?

Jaynes: It’s robust, and there’s still room to add selectively to that pipeline with the right projects. This activity is set against a continued strong market for third-party construction lenders in the hotel space, and we continue to receive a steady flow of construction loan requests from across the country. At HSF, we lend up to 75 percent of the LTC for the right projects. The ability to offer flexible structures and loan terms has set us apart from our competition and resulted in a very strong pipeline of quality hotel developments for the year. What do you typically look for in a hotel construction deal?

Jaynes: First, we look for a strong development team. They don’t necessarily need to have a lengthy track record, as we do work with several entrepreneurial development teams, but they need to have strong knowledge of the local market and the industry overall. We also like to finance the construction of projects in major markets or strong secondary markets, and we prefer flagged products with multiple local demand generators. However, we have also financed select resort and boutique hotels in markets where those product types thrive. How have you seen hotels evolve over the past five to ten years and what’s next?

Jaynes: The addition of experiential amenities, such as wellness programs, curated art collections and unique F&B concepts, has been a big focus for hotels. Technology has also impacted the industry, from the booking stage through the guest experience. There is constant innovation in the hospitality industry, and we are going to see the guest experience become more and more sophisticated and individually tailored over the next several years. You mentioned lending would be tightening up. What are some of the other challenges to borrowers?

Jaynes: New debt funds and other forms of competition are being added to the market, while more banks are bowing out of the construction side of financing. Additionally, increased construction and labors costs have affected supply in certain markets and created some additional challenges in the lending space. How will construction-lender underwriting change going forward this year?

Jaynes: We’re going to see a more conservative forecasting of occupancy, ADR and RevPAR increases. Also, we will tighten margins as they pertain to bottom-line NOI in light of increased labor costs. We’ll also tend to build in more contingency in the overall capital stack for a project based on these considerations, as material costs and labor expenditures increased. And interest rates?

Jaynes: National rates will stay pretty much in line with last year, as indexes have gone up but margins have been squeezed somewhat.