Excerpt from CoStar

Lenders, Experts Aren't Fretting Over Wave of Maturities

While there's been a lot of talk about a wave of debt maturities in 2023, lenders and experts said they think it will ultimately be dealt with without creating much disruption.

Fears that a wave of debt maturities, a recession and a risk-averse attitude leading to less lending to commercial real estate could sink the availability of financing for hotels are overblown, experts said, but hotel investors will have to grow more comfortable with the increasing cost of capital.

Speaking with Hotel News Now, PMZ Realty Capital President Peter Berk said there's "no shortage of availability of debt financing" for hotels, and that is expected to remain the case through the year.

"The [commercial mortgage-backed securities] lenders are out there looking for deals; there's just not a lot of people that want to pay the freight for that," he said. "Those are fixed-rate loans. On the floating rate side, there's also a lot of lenders, but those loans are priced anywhere from the 8% to 10% range, and people don't want to pay that."

Experts agreed that seems to be the overarching theme heading into 2023: Money is out there, but it's expensive. And that's expected to remain the case as the Federal Reserve continues its plans to push interest rates upwards.

Berk said there has been an "education process" working with borrowers to understand they won't be able to get debt as cheaply as they have in recent memory, and that some of the rates they can get now are still OK to good from a historic perspective.

"They hear [debt is more expensive] from us, and they hear it from other people, but still in the back of their mind, they look at the last deal they did and think 'Why can't I get that?'" he said. "So there's always a time passage that has to come down before they realize that 6% really isn't a bad number. Historically, it's an average-to-good number."

Scott Melby, vice president of capital markets for Driftwood Capital, a hotel ownership company that also has its own lending platform, said it's reasonable to expect interest rate increases to continue at least through the third quarter of 2023 — although some are hopeful the Fed reverses course more quickly.

"Financings are getting done, and debt funds are making up the majority of that," he said, adding his company is closing a deal at a 10% interest rate at a 65% loan to cost.

Melby said the availability of financing varies greatly based on the size of a project, which Driftwood is more comfortable with on the smaller side.

"That $10 million to $20 million mezz slug still seems to be a pretty active place in terms of what people are needing capital," he said.

Mathew Crosswy, president of Stonehill Strategic Capital, said hoteliers shouldn't expect a repeat of the Great Recession even if the broader economy heads into a recession.

"For the most part, underwriting fundamentals have been sound, so loans are doing pretty well," he said. "And the hospitality industry has a lot of tailwinds. So good-performing loans should be finance-able. Banks will extend credit with existing borrowers."

Donald Braun, president of Dallas-based lender Hall Structured Finance, said his firm continues to be "anxious and open to do a lot of new originations in 2023."

"There's not been any pullback for us," he said. "Clearly every property sector has been impacted by the increase in interest rates, and hospitality is no different in terms of financing. The impact has been a bit more on the institutional and conventional lending sources."

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