Banks are beginning to increase pressure on borrowers with non-performing loans to pay or find financing elsewhere. Borrowers with low-leverage loans pre-COVID that simply need time to restabilize are turning to the bridge loan market for alternatives. The situation is particularly acute in the hotel sector.
“We have a very large base of clients in the hotel industry, having completed over 250 hotel loans,” commented Michael Sneden, Executive Vice President at ValueXpress. “Our hotel borrowers with non-CMBS loans are finding that their lenders are asking to be paid off, sometimes at a discount.” To accommodate, ValueXpress is reaching out to bridge lending relationships to find refinancing solutions for loans over $5 million and utilizing the SBA 7(a) loan program for loans under $5 million.
The typical structure for an SBA 7(a) loan is a 25-year term with a 5%/3%/1% prepayment penalty. So, in essence, the loan acts as a 24-month bridge loan with a 1% exit fee. Pricing starts at Prime plus 2%, which is a very attractive 5.25% today. For loans over $5 million, private lenders are providing an interest-only structure with a 12- to 18-month interest reserve for the COVID-19 restabilization period at rates of 8%-9%, reflective of the risk on whether the property will return to pre-COVID operating levels.