“Hotels are attractive investment, lenders say”

Hotels are attractive investment, lenders say

Posted: 30 Nov 2010 12:31 AM PST

JPMorgan Chase & Co. and Wells Fargo & Co. are seeking to increase financing for hotels as lenders recover more money from loans backed by lodging than from debt secured by other types of commercial real estate.

Lenders' losses on nonperforming hotel loans were about 53 percent this year through September, compared with 63 percent for retail property loans, 62 percent for industrial, 61 percent for multifamily and 57 percent for office, according to data from Trepp LLC, a mortgage-information provider. The figures exclude loans with losses of 2 percent or less.

A recovery in the lodging industry helped delinquencies on U.S. commercial mortgage-backed securities drop for the first time in almost three years last month, Fitch Ratings said in a Nov. 5 note. The revival is lifting hotel property values and enticing lenders to rework existing loans and seek out new ones.

"Right now is a particularly attractive time to be lending to the hotel sector," Christopher Jordan, head of hospitality banking at San Francisco's Wells Fargo, said in a telephone interview. "We prefer lending at the trough to lending at the top. Now you are at the front end of the upswing."

Hotel occupancies in the top 25 U.S. markets climbed to 65 percent this year through September from 61 percent in the same period in 2009, said Smith Travel Research Inc. Revenue per available room rose 6.3 percent to $75.79.

"We are definitely making loans on hotels," said Jon Strain, head of capital markets for JPMorgan's commercial real estate group. Revenue and occupancy "trends have been very strong across the U.S.," he said.

Commercial mortgage-backed securities delinquencies dropped to 7.78 percent at the end of October, down 88 basis points from the previous month, according to Fitch. Hotel delinquencies fell to about 14 percent from 21 percent in September, the largest percentage-point decline ever recorded by Fitch for any property type.

The resolution of seven loans greater than $100 million contributed to the decline, Fitch said. That included a $4.1 billion Extended Stay Inc. loan backed by a portfolio of 682 hotel properties. Extended Stay last year filed the largest bankruptcy by a U.S. hotel owner.

"Hotels represent a very attractive investment opportunity because they've seen such a sharp decline," Jonathan Gray, senior managing director and co-head of real estate at Blackstone Group LP, said during a conference in New York on Nov. 18. "We've been deploying a lot of capital in this area."

Gray has invested $4 billion in distressed deals for Blackstone in the past year, including stakes in Extended Stay, mall owner General Growth Properties Inc. and Sunwest Management Inc., an assisted-living provider.

Rising prices for hotels and money raised in share sales by real estate investment trusts have boosted lender confidence in the lodging industry, said Jordan of Wells Fargo.

"REITs and other hotel buyers have been paying tomorrow's prices today, particularly in some cities, like New York and Washington, D.C., so they don't miss out on the opportunity to own those assets," he said. "These transactions have been a window into the value of hotel properties and have injected confidence into the system."

This article appeared on page D - 3 of the San Francisco Chronicle

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