Hotel owners and developers in the United States are currently stalled in their efforts to finance acquisitions, developments, renovations and refinance existing assets. Corporate transactions have been equally hampered by the current market uncertainty, with credit committees reluctant to approve much of anything these days.

Lenders are extremely cautious when it comes to booking deals at the moment. It seems that no deal is better than a bad deal. With little appetite in the secondary market, banks are acutely aware that agreed exposures will likely remain on the balance sheet for the term of the loan. For this reason, only the safest existing asset transactions are likely to get done today. For loans of greater that $25m, a club will likely have to be assembled in such increments. Nearly everyday I get asked the question; So when do you think markets will open up again?

As we all know, markets are cyclical. We are in a period of uncertainty similar to others in the recent past. It took approximately 18 months for confidence to return to financial markets post 9/11, for example. It has now been 8 months since sub prime began to unravel and it appears the worst is behind us. As such, LIBOR peaked in early December 2007 as did the TED spread.

For the time being, it appears that financial institutions will continue to err on the side of caution, which should make it a quiet summer on the deal front. In the absence of further bad news of write downs by major institutions related to US real estate assets, it seems confidence may begin to return by year-end. (As an aside, I read a recent article criticizing the methodology banks have used to mark assets to market, which substantiated the write downs, which speculated that there may be write ups made in coming months.) Inflation may also threaten to further delay recovery by leading to higher interest rates just as banks regain their appetite for the sector.

Lodging demand is already being affected by companies curtailing overhead expenses and Americans’ more frugal spending patterns in recent months. March is expected to be the weakest month in recent memory with softness expected to continue near-term. Projected operating results and asset valuations will be affected, which will likely make any financings undertaken in the year a bit bumpy.

In the absence of further bad news, it seems we have another 6 to 12 months before lenders return to the lodging sector. That being said, relationship-driven institutions with foresight and an interest in building a
loyal client base in the sector would be wise to go into bat for companies it wishes to woo during this downturn. This would entail working with credit committees to get them comfortable with lending again in this uncertain climate. Now the next question, who are those lenders?