When the hotel industry came to a halt at the beginning of the COVID-19 pandemic, there was a lot of uncertainty to overcome, specifically around financing. Many hotel owners worked through a series of forbearances and loan modifications which often included unfavorable terms in order to avoid lenders calling a default. As the industry continues to progress, borrowers look to refinance existing debt or gain access to capital to acquire or construct new hotels in this growing market. The common theme appears to be that lenders are willing to lend, but it comes at a price.
With rising interest rates, the days of cash-out equity at low-interest rates may be a thing of the past, at least for now. However, that doesn't mean deals aren't getting done. Some hotel borrowers may be faced with less availability on the "rinse and repeat" of deals past, with stronger underwriting requirements and new provisions in loan documents to account for the pandemic and the perceived uncertainty in the market. A few things remain: borrowers appear to be leveraging existing relationships, lenders value strong sponsors, and debt funds will continue to make up a large portion of hotel financing.
With the rising cost of capital, many hotel investors took time to evaluate deals at the end of 2022, causing a slowdown in deal flow across the market. While there is no crystal ball for 2023, with hotel owners and investors becoming more comfortable with the "new" lending frontier, many agree the hotel industry will have another strong year.
