SDSU Releases Survey Results

Despite the difficulty in obtaining hotel financing today, there are still many ways to finance a hotel deal in 2003. Thus concludes an analysis of lender profiles conducted by the Center (SDSU) for Hospitality and Tourism Research at San Diego State University entitled “Hotel Debt and Equity Trends 2003.”
The analysis was performed on lender profiles gathered by the Global Hospitality Group of Jeffer, Mangels, Butler & Marmaro LLP, a Los Angeles-based law firm, in connection with its recent annual hotel conference, Meet the Money®
The survey of 35 hotel debt and equity capital providers included construction lenders, mezzanine debt lenders, permanent lenders and equity capital sources. The range of hotel debt was from $1 million from SBA lenders to $100 million from larger banking institutions. The most popular markets were downtown markets in major metropolitan areas, according to Robert Rauch, director of the SDSU research center.


Budget and economy properties were looked upon least favorably with mid-price, limited-service hotels and upscale properties the most popular. Resorts also received high consideration.

The average holding period for an equity investment was 10.5 years with a desired return of 20 percent leveraged, 13 percent unleveraged. First year cash-on-cash return
requirements were 10.5 percent on average with a stabilized return requirement averaging 18.5 percent.

Interest rates were typically 400 basis points over the London Interbank Offering Rate (LIBOR) which today puts it at about a six percent loan rate with mezzanine debt at about 975 basis points over LIBOR or about 11.5 percent. The loan to value ratio was in the high-50 percent range for construction loans, low-mid 70 percent range for mezzanine loans and just over 70 percent for bridge or acquisition loans.

The key preference for the capital providers was a strong, diverse market, a strong economic return on investment, barriers to entry and a strong brand, operator and loan sponsor.

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