Hospitality Market Update

October 19, 2017

The hospitality market remains strong and hotel occupancy remains high throughout most of the US. Below are more specifics on lending activity in the hospitality market.

Influences on Hotel Lending:

  • Hotel/hospitality lending has seen an unprecedented increase in activity, values, room rates and occupancy since the end of the last recession in mid-2010 forward.
  • New hotel brands, lifestyle and patronage changes within the different traveler profiles, as well as leisure, business and technology based innovations have all fueled this uptick.
  • As within any economic boon period, new supply is built and/or planned, which influences the ADR (average daily rate), RevPAR (revenue per available room) and occupancy.
  • There is quite a bit of new supply coming online in major markets, which is forecasted to slow down growth, but overall, the lodging industry is forecasted to enjoy continued growth in all major metrics in 2018, albeit at a slower rate. The influx of AirBNB into the market has dug into the smaller hotel segment market as well as markets outside high end urban cores.
  • Areas where lenders have the most comfort level continue to be in urban cores and by hotels in and around Airports and high tourist communities/cities.
  • Lenders have indicated that economy, independent and luxury hotel products are given additional scrutiny on a “go forward” basis.
  • Lenders have indicated that LTV’s are generally in the 50-65% level, with the strongest Flags (brands) and high end locations such as San Francisco and New York, qualifying for higher LTV’s up to 70%+.
  • Regardless of the performance, lenders usually stress test the loans at a max 75% occupancy and take a 5-10% hit off ADR.
  • Construction lending has become increasingly challenging, given the feeling that we are at or near the top of the market. Most hotel construction loans require a low of 35% equity (loan to cost); the more common requirement is elevating to 40-50% (Although the top brands, developers and locations will allow for more aggressive ratio’s).
  • Local lenders to the hotel location have generally become an important criterion in the smaller hotel segment, and CMBS lenders continue to be the leader for higher LTV, non-recourse loans on a national basis.

Market Forecast:

The U.S. lodging industry is forecasted to enjoy continued growth in all major metrics in 2018, albeit at a slower pace. Industry experts are forecasting year-over-year increases in occupancy, average daily room rate (ADR), rooms revenue (RevPAR), total operating revenue, and gross operating profits (GOP) from 2017 to 2018.

As hotel owners and operators begin the process of preparing their 2018 marketing plans and budgets it is vital that they receive critical inputs on what will drive industry performance based on the industry analysis of the economic and operating environments. It is believed that U.S. hotels will once again achieve record occupancy levels and continued growth in profits, during the upcoming year.

Most Industry professionals are forecasting a 0.1 percent occupancy increase along with a 2.3 percent rise in ADR for 2018. The net result is a projected 2.4 percent boost to RevPAR. “The limited growth rates may be disappointing or even troubling for some industry participants. However, 2018 will mark the ninth consecutive year of rising occupancy, something we have not seen since the 1990s. While the slow growth in occupancy does indicate we are at the top of the business cycle, all factors indicate that we are in the midst of a record breaking, sustained period of prosperity for U.S. hotels. Like occupancy, hotel pundits are also projecting a ninth consecutive year of growth in RevPAR, total operating revenue, and GOP in 2018.”

Industry wide, it has also has been identified that there is an uptick in new lodging supply. For 2018, the  forecast is for a 2.0 percent increase in the number of available rooms. This does exceed the 1.8 percent long-run average annual rate of supply growth as reported by STR. Historically, experts note we have seen rising supply precede industry downturns. Fortunately, as has been demonstrated for several years now, the economic factors that matter most for hotel demand growth exceeded the changes in supply,” said John B. (Jack) Corgel, Ph.D., professor of real estate at the Cornell University School of Hotel Administration. Looking forward, employment levels and income gains are expected and remain attractive. These movements will result in growing levels of demand and occupancy to counter balance supply growth in the Hotel segment.

Barry Slatt Mortgage Hotel lending:

As part of Barry Slatt Mortgages’s full service lending platform, hotel lending has been and continues to be an active area of expertise and activity. The company has closed a large number of Hotel loans throughout the U.S. through its correspondent network and additionally through a myriad of other lending and capital sources. These loans have been placed for acquisitions, refinance’s, new construction and renovation/flag conversion. We are currently processing many hotel loans for end of the year closing’s and receiving new requests for the new year.


Sources: CBRE Hotels 2018, HVS and STR


Scott Monasch, Principal with Barry Slatt Mortgage since 1997 is a very successful Hotel lending producer throughout the U.S. and source of Hotel Lending knowledge. Mr. Monasch has placed well over 100 hotel loans throughout the U.S. with a wide array of structures, product types and lending sources. He has also spoken as a panelist or moderator for many Hotel Industry events.