Lenders Turn to Hotel Financing

Many banks now prefer to finance hotels than to provide debt to commercial Real Estate firms. According to market analysts, lenders’ incurred losses accumulated from non-performing loans to hotels was about 53% in the 12 months to September. This is the lowest compared to incurred losses from providing retail property loans (63%), industrial loans (62%), office space development funding (57%), and multifamily site constructions (61%).

An imminent recovery of the hotel lodging industry has helped overall volume of delinquencies on commercial mortgage-backed securities in the US to decrease for the very first time in September after about three years. Observers note that this revival is helping lift the values of hotel properties. It also entices banks to rework current or existing loans and convince hotels to apply for new ones.

Analysts assert that it is a particularly ideal time to lend money to the hotel sector. They add that lenders could be sure about the yields they could generate and they may not worry about hotels’ abilities to repay debts due to the sector’s rising performance. Hotel occupancy across the top 25 metropolitan areas in the US jumped to 65% in the 12 months ending September compared to about 61% in the same period in the preceding year. Meanwhile, the industry’s revenue for every available room climbed 6.3% in the period to $75.79. Figures indicate that the hotel sector is rising.

JP Morgan Chase & Co has announced plans to provide more loans to hotels amid strengthening revenue and occupancy data across the US. The New York-based lender said it has not deviated from hotel lending. The company has invested up to $8.4 billion in the 12 months to September in providing loans that are tied to lodging, along with homebuilding, Real Estate investment trusts, and other properties. The figure compares to about $11.2 billion in the preceding 12 months.

For its part, Wells Fargo has released a combined $6.5 billion in loans tied to motels and hotels in the same period. The figure was up compared to $6.4 billion it invested in the same sector in the preceding year. As of September 30, the bank’s commercial property portfolio was at $126.7 billion, about 17% of its overall loans provided.

Some market analysts emphasize that hotels have the greatest advantage. That is because the businesses could easily and quickly bolster rental rates to underpin an improving economy while tenants prefer to get into multi-year lease agreements. For more related news, visit ForeclosureConnections.com.