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Hospitality Construction Lending Isn't Down. It's Adapting

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Strict lending regulations throughout 2016 spread fears that banks would tighten their loan belts. In 2017, those fears have dissipated somewhat as that forecast failed to come to fruition in the wake of new commercial mortgage-backed securities market standards and the arrival of private lenders to the real estate industry. During the second quarter, CMBS issuance grew from $30.7B a year ago to $38.8B. This recent jump indicates banks and alternative lenders have grown more comfortable with risk retention rules and CRE debt. And while traditional lenders remain gun-shy, private lenders are rapidly closing in on deals.

HALL Structured Finance, the Dallas-based lending branch of HALL Group, has taken full advantage of the mini-vacuum of institutional lender hesitancy. The HSF team recently began expanding its portfolio to meet construction financing demand in several asset classes, including student housing, multifamily, office and condominiums.

Hospitality lending remains the group’s most common asset type. On Aug. 16, HSF announced the closing of two first-lien loans totaling $42M, financing the construction of two Cambria Suites in California’s Sonoma County and Napa Valley from Newport Beach-based Stratus Development Partners. Driven by excess hospitality demand in one of the country’s most popular wine tourism hot spots, the lenders believe these two hotels will flourish in one of the few underserved hospitality markets left on the West Coast.

“The strength of tourism in the Napa Valley and Sonoma wine industries will be a major demand-generator for these hotels,” HSF President Mike Jaynes said. “We are confident that these Cambria products will be very successful in their local markets.”

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HSF provided $19.8M and $22.1M, respectively, for the hotels. 

“Securing construction financing in today’s regulated banking climate can be difficult to say the least,” SDP project developer David Wood said. “HSF worked with us diligently every step of the way to find a capital solution that worked for our unique needs, and they went above and beyond to secure both loans so that our team could begin construction.”

HSF has surpassed $115M in loan closings this year, not counting the six additional projects totaling $140M expected to close. Four of the five loans thus far this year have been brand-name hotel projects, including Hyatt, Cambria and Marriott.

"Given the growing volume of high-quality projects we are seeing, coupled with an increase in financing demand, we plan to provide upwards of $1B in construction loans by 2019," Jaynes said.

To learn more about HALL Structured Finance, click here.