Ehotelier reported that the International Lodging Finance Council (ILFC) had announced the results of its annual survey of 41 active senior and subordinate lenders. Unsurprisingly, surveyed lenders expressed a conservative outlook, with palatable LTV’s dropping from the mid-70s to the low to mid 60s on existing assets, with only certain high leverage lenders still participating in the market.

Deals appear to be getting done based on existing relationships and significantly, with sponsors who have a proven track record, experience, and financial strength. Lenders are also concerned about the threat that pending refinancings pose to owners, particularly if operating results deteriorate further. Shrinking NOIs impact value and highly leveraged assets may no longer generate sufficient cash flow to meet valuation requirements, especially with more stringent lending criteria. Additions to supply, which continue to be rolled out, will only exacerbate these issues.

These sentiments have been echoed in conversations we have been having with owners seeking financing as well as lenders. Credit committees are taking longer to provide approvals, if they’re provided at all. Even those lenders providing approvals, are doing so with increasingly wide spreads, robust fees, and lengthy lockout periods. Loans for assets that are slightly out of the box with construction or repositioning risk, or which are located in challenging jurisdictions, are simply not getting done.

Having faced many credit committees pre-credit crunch, I know that banks have always been reluctant to approve more than $25 million for any given project or client and lent larger amounts strictly for relationship reasons. Such approvals came with requirements to sell down over time to more comfortable levels. With the secondary market for such paper currently dry and banks having no ability to sell down, larger deals are only getting done by assembling clubs.

The billion dollar question on everyone’s lips is how long will these conditions last? Most believe things will begin to improve in early 2009, but with real fears of inflation and waning consumer confidence, pessimists are whispering that improvement may take much longer. It will be interesting to see what sentiment is like at the upcoming NYU conference.