Collapse of US Banks Could Make Hotel Financing Harder to Find – CoStar
Other Financing Players Will Come to the Table as Banks Pull Back
The fall of Silicon Valley Bank and Signature Bank, the largest U.S. banking collapse since the Great Recession, will ultimately lead to a shift in funding sources, difficulty obtaining hotel construction loans and a slowdown in recovery of the already challenging lending environment, say hotel analysts and owners.
It’s been a tumultuous week for banks in the U.S. and Europe, with the shutdowns of Silicon Valley Bank and Signature Bank, and rescues for Switzerland’s Credit Suisse and First Republic Bank in San Francisco, leading to banking stock slides, recoveries and further slides, eroding confidence among investors.
What Does This Mean for Hoteliers?
But what does it mean for the hotel sector? That’s to be determined based on what part of the industry you’re in, say analysts.
Many publicly traded hotel real estate investment trusts have outsized hotel ownership exposure in the greater San Francisco area. San Francisco was already severely challenged prior to SVB’s collapse, and recent events won’t help the recovery of that market, said C. Patrick Scholes, managing director of lodging and leisure equity research for Truist Securities, in an email interview.
Sonder Holdings, a hospitality company that manages short-term apartment-hotel rentals around the world, shared on March 10 it had approximately $20 million in deposit accounts with Silicon Valley Bank.
The company also holds a $60 million line of credit facility with SVB “issued in the ordinary course of business for the benefit of property owners and other counterparts, of which $13 million is currently utilized in the form of letters of credit.”
Sonder said it was actively monitoring the situation with SVB “and will take appropriate action as needed.”
Michael Bellisario, senior hotel research analyst and director at Baird, said via email that for the hotel brands and real estate investment trusts, he sees no direct or immediate financial impact. However, the unknown for the industry remains the near- to intermediate-term effects on financing availability and how banks could adjust their risk tolerance and allocations to hotel real estate.
“More broadly, the bigger worry is about the impact on overall economic growth and potential second order effects down the road,” he said.
Peter Berk, president of PMZ Realty Capital, a full-service real estate firm providing debt and equity for real estate projects across the country, said while the situation is fluid, the big picture with the collapse of these two banks is that the Office of Currency Control is increasing the requirement that local and regional banks must have in terms of cash on hand.
“I think we’re going to see a pullback in the banking world; people are going to be looking for alternative sources to finance their hotels or whatever other types of businesses they’re in,” he said. “That leads us toward … pension funds, insurance companies — they’re still very active in deals over $50 million. For deals under $50 million, the capital markets — like the commercial mortgage-backed securities market, specialty lenders, private lenders — they all see this as an opportunity to gain market share because they’re not subject to the same requirements as local and regional banks.”
Construction loans, which generally “come from the banking world,” will be most affected, Berk said. Other lenders, such as pension funds and insurance companies, are extremely selective providing construction loans.
“That’s usually been the bread and butter of the banking world,” he added.
Who’s to gain in this situation? Berk said it’s those individuals who already have their shovels in the ground and construction commitments underway. He said those projects will carry on, since lenders won’t walk away from their commitments.
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