Originally seen HERE.
In the “Economic Overview” wrap-up session of Meet the Money 2024, Paul Single painted a rosy picture of the travel and hotel industries. According to the senior economist and managing director of City National Bank Rochdale, the economy is strong, employment in the industries has regained its footing, and consumers, particularly Baby Boomers, have more disposable income to spend on travel. With all of this in play, one would think now would be the perfect time for independent hoteliers and major hotel companies to jump in and place their bets on new properties or acquisitions and for financial institutions to grant them loans to enable them to do that.
Jennifer Davis, senior vice president of business development TMC Financing, Irvine, Calif.; Eric Kraft, managing director, Benefit Street Partners, New York; Ash Patel, chairman, president and CEO at Commercial Bank of California; and Rocky Chamdal, vice president, business development at Celtic Bank, Irvine, Calif. provided insight on what kinds of loans are available and what hospitality companies should look for in financial institutions and loan companies.
Much of the discourse during the “Who’s Financing Now” panel, moderated by Stephen O’Connor, principal and managing director at RobertDouglas, underscored the reality that taking out loans and choosing the right loan is an individual decision to be made based on the hotelier’s needs for expansion or improvements, independent of larger travel trends.
Financing and Financiers
O’Connor launched the conversation by noting there was still good news for hoteliers interested in financing, including smaller companies looking for financing assistance: They have more options than they realize in terms of getting the right kind of loan to build their businesses and, in turn, provide products that will make diverse travelers in this growing market happy.
The hour-long discussion was dedicated to the availability of non-recourse loans (protecting the borrower and brokers, in contrast to recourse loans where the lender can pursue additional assets should the loan default), as well as loan types, the time frames for closing different deals, and collaborations between banks and loan companies such as Celtic Bank and TMC Financing which support the borrower.
“We are absolutely open for business, and we’re lending quite a bit at this time,” said Kraft emphatically. “The [U.S. Small Business Administration] right now is actively looking to put capital in the marketplace. They’ve eased up a number of the regulations concerning affiliation, with regards to identity of interest. They’re certainly making it a lot easier. Therefore, as a certified development corporation, our volume continues to remain strong. We’ve seen a little bit of a slowdown in our more traditional products, and asset types specific to hospitality, but we are also seeing a tremendous amount of refinance volume. We have a product offering that’s a long-term fixed rate, and it helps clients kind of fix those occupancy costs.”
Refinancing and Purchase Deals
Kraft expects the pace to continue for the well-capitalized Benefit Street Partners throughout 2023. He credits this in part to the fact that in the past few years the firm was not overly aggressive on deals. This gives Kraft and his colleagues the flexibility to pursue new opportunities, including a good mix of refinance and purchase deals for their hospitality clients. He also predicts growth to continue meaningfully as the firm continues to raise more capital, and budget growth is about 20 percent, which is about $400 million in size to grow.
Davis, whose company teams up with financial institutions like Celtic Bank, stressed that hospitality companies pursuing financial assistance have more resources than they may realize. Other services include vetting contractors, and while this may add time to the approval process, the company can still help get projects started fairly quickly. She credits this to the firm’s underwriting team.
“We are the largest CDC [certified development corporation] in the nation as well as the largest hospitality CDC,” she explained. “This means we do more volume with the SBA than any company in the nation, and we’ve done more hotel loans with SBA than any other company. We facilitate the 504 loan program, educate the buyer, educate the individuals, facilitate the process, underwrite, obtain loan approval, and service alone. When we partner with a financial institution, we are in the second position in that capital stack, right? You have a bank partner in hospitality.”
“Our bank does 7A loans, which is one of the most common government-backed loans sought out by hoteliers,” explained Chamdal on what’s driving his company’s growth, in addition to teaming up with companies like TMC. He estimates hotels and hospitality comprise 30 percent of the company portfolio.
“The loan requirements are straightforward, and the terms are appealing to both lenders and borrowers,” he continued. “We also offer SBA 504 loans in partnership with CDCs, which caps out at either five or five and a half million. And then there is the equity injection requirement that runs anywhere from 15 percent to 20 percent. I’m doing a $4 million 7A loan in Hawaii right now, and I’m doing a $13 million 504 loan in Arizona, which we are doing in collaboration with Jennifer’s team. We do USDA loans in rural areas up to approximately $25 million.”
Patel pointed out Commercial Bank of California is privately owned and many key players and founders are entrepreneurs in their own right. He described hotel clients as “generally conservative operators,” and their hotel ownership history and operations style are considered when determining whether they would be a good client.
“We’ve built the hospitality bank around the hospitality owners and for their financial needs and offer a variety of products, including SBA 504 loans [which have specific eligibility requirements and rules on how borrowers can use the funds] and other loan types,” he said. “We have clients around the country, and as a ‘balance sheet vendor,’ we do not offload assets.”
Although there are many percentages, dollar figures and timelines to consider, hospitality companies and hoteliers can depend on experts like these to help navigate projects and help steer borrowers and lenders in the right direction.
