New JLL Hospitality Debt Report Shows Promising Road to Recovery

As the lodging industry continues to head down the road to recovery and many major lenders return to the market, JLL’s Hotel Investment Banking team recently released its Hospitality Debt Market Commentary to provide insights on the state of the market and identify positive trends.

JLL’s Hotel Investment Banking team is actively engaged in over $2 billion in financing assignments, as the hospitality debt market is showing a strong resurgence.

“With positive hotel room night demand trends gaining momentum, particularly in the leisure segment for drive-to hotels and resorts, investor confidence is increasing,” said Scott Hall, a senior managing director with JLL Hotels. “As a result, the hotel transactional market for the Rocky Mountain region will benefit significantly from heightened investor appetite.”

According to the report…

  • Debt funds are the most active lenders, followed by banks, insurance companies and CMBS, which still remain selective for high-quality assets. There are also significant spread comparisons with the debt funds, with bank spreads remaining steady since Fall 2020. Additionally, the banks continue to provide the lowest cost of capital, however, its pricing advantage has narrowed as debt fund spreads have compressed.
  • There is greater liquidity for acquisitions or cash-in refinancing. And while debt funds prefer to quote acquisitions, most are also actively quoting refinancing.
  • Leverage levels have increased as banks and insurance companies are willing to push leverages to 55-60 percent, which is up from 50 percent in Fall 2020. The debt funds are also willing to push leverage to 75-80 percent for the best, high-quality assets.
  • “In favor” drive-to-leisure resorts and trophy/luxury asset types are in demand. Financings for these asset types are generating the most attention, followed by high-quality assets in good, long-term markets at a modest loan basis.
  • In select states, retroactive CPACE financing represents a creative source of capital for recently developed or renovated hotels.

“We are encouraged by the amount of liquidity that has returned to the hotel debt space as operating fundamentals continue to improve,” continues Tyler Dumon, vice president with JLL’s Hotels team, based in Denver. “Our team is excited to continue to advise our clients on the best capitalization solutions in what will continue to be a very dynamic market through 2021.”

JLL’s Hotels & Hospitality Group has completed more transactions than any other hotels and hospitality real estate advisor over the last five years, totaling $83 billion worldwide. The group’s 350-strong global team in over 20 countries also closed more than 7,350 advisory, valuation and asset management assignments.

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