Most borrowers are aware that hotel properties are eligible for CMBS conduit loans. However, some sponsors mistakenly believe that all hotels are eligible for CMBS conduit loans, but that is not true. In general, independent hotels that are not operated under a nationally recognized franchise brand are generally ineligible for a CMBS conduit loan. An exception to this guideline is beachfront hotels in desirable locations that do not require a franchise to provide room demand; the beachfront location drives the demand. In addition, luxury and upscale hotels generally located in major metropolitan area that provide a unique experience at an elevated price point are also typically eligible for CMBS conduit loans, even if they do not have a franchise brand.
Furthermore, not all franchise brands are eligible for CMBS conduit loans. In general, economy brands, sometimes referred to as “budget” brands, are not eligible for CMBS conduit loans. “Often I am asked ‘how do I determine a budget brand from other brands to determine if the brand is eligible for a CMBS conduit loan?’ ” commented Michael D. Sneden, Executive Vice President at ValueXpress. Luckily there is a resource that publishes the answer.
STR, a Hendersonville, Tennessee, company that tracks supply and demand data globally for hotels publishes a list of “Hotel Chain Scales” that categorizes each hotel franchise brand into the following categories – Economy, Midscale, Upper Midscale, Upscale, Upper Upscale and Luxury. All categories except Economy are eligible for a CMBS conduit loan.
To download a one-page summary of the Hotel Chain Scales, last published in 2015, for all the major chains, click here. If you do not see your franchise brand on that list, click here to see the Hotel Chain Scale – Detail” file, which has all 1,000 brand franchise as of 2017. As a final note, the hotel needs to be interior corridor (except for beachfront hotels) in order to qualify for a CMBS conduit loan.