Hospitality Financing Heats Up as Hotel Transactions Lock into Holding Pattern

Blog-Headers-November-Blog-1 After a record-high number of hotel transactions last year, some markets are seeing sales activity cool down. Rather than enter the market, some hotel owners increasingly look to financing in the hospitality industry to hold onto properties and grow the value of their portfolio.   Those looking to keep their hospitality properties now have more options than ever for improving their hotels through low-cost hospitality financing, driving a trend in mortgage refinancing as well as short-term financing for improvement projects. Since many ascribe plateauing sales activity to a shrinking number of “high growth opportunity” transactions, hotel owners who are able to boost property value by growing sales can improve their chances of attracting more buyers later at their preferred price.   Explore the current market situation for hotel property sales and why many owners are looking to finance instead of selling by reading on.

Record-Volume Sales Giving Way to Flat Growth

Nothing lasts forever, and that will most likely be the case with the current high volume of hotel property sales.   A majority of the high-watermark sales activity seen recently occurred in high-value, metro-area primary markets. For instance San Diego hotel transactions were up 70% in the first six months of 2017 compared to the same period last year. Sales in Canada are also up in a similar pattern. The offloading of bcIMC’s extensive 25 hotel portfolio contributed to a record-breaking Q1 of $1.6 billion for the country.   Yet, many are seeing signs of the peak and drop-off ahead. Already, total sales across the U.S. have flattened compared to last year. Sales in large markets have declined as many properties are either under construction or have seen speculation cool. At the same time, interest in secondary and tertiary markets has risen.   “Hotel sales transaction volume in the major metro markets, which declined by 29 percent in [the first half of 2017], was offset by a significant increase in activity in the tertiary markets,” says Suzanne Mellen, senior managing director at hospitality market research company HVS.   A lack of prime opportunities has driven buyers to these lower-value markets with high growth potential, explains SVN Hotels’ CEO Sanjay Mundra. “The expectation of a seller is generally higher than what the buyer is willing to pay,” in the larger markets, he explains. Meanwhile, “money is going to secondary and tertiary markets when the deals are not affordable or doable by the buyers in the larger primary markets.”

Financing in the Hospitality Industry Helps Owners Grow

In the face of cooling interest in top-dollar properties, many hotel owners are refinancing their mortgages and financing improvement projects through hospitality loans.   “[We] experienced a significant rise in the number of assets appraised,” Mellen observed, “largely attributed to a wave of refinancing, low interest rates and availability of debt drove hotel owners to refinance and realize gains on their investments.”   Many hotel owners are in a rush to secure financing now since the current extraordinarily low federal interest rate standards may not hold out for long in a strengthening economy.   “We expect interest rates to continue to move up slowly over the next year in keeping with federal policy,” predicts Ed James of hotel brokerage and consulting group Mumford Company.   While interest rates remain low, hotel owners have more incentive to secure flexible hotel loan products that can help them make strategic improvements or contribute to the stability of their bottom line. By using funds to renovate, add services or improve operational efficiencies, these hospitality businesses can increase their profits per-room and make their businesses more attractive to potential buyers.   Then, when the market makes another positive turn, they can cash in on their investments with more to show for it.   If you are looking to finance your own hotel improvement projects or operations, then now is a great time to do so. You can secure hotel bridge loans or working capital loans to get the credit you need to grow.   Start exploring your options today when you receive a free, no-obligation quote from ARF Financial! With low rates, fixed terms up to 2 years and a streamlined approval process, you could have your money in as little as 3-5 business days. Click here to get started!