Lender competition for CMBS conduit loans for hotels, particularly limited-service hotels owned by AAHOA members, is contributing to rapidly declining interest rates for borrowers. In addition, small balance borrowers ($3 million-$10 million) are enjoying low interest rates that were previously available only for transactions over $20 million.
“We are seeing 10-year fixed interest rates on larger hotel deals and portfolio deals in the 4.5% area,” commented Jay Bhakta, Senior Loan Originator at ValueXpress. “But what is really compelling is 10-year fixed interest rates under 5% for Hamptons, Holiday Inn Express and similar limited-service properties even if the loan amount is only around $5 million. Although we do a lot of big deals, the $5-million deal is our bread-and-butter business for AAHOA members.”
“What has happened is the index that is used to set the interest rate for CMBS conduit loans has fallen in April because the economy is not growing much and corporate earnings in the first quarter were poor,” explained Michael D. Sneden, Executive Vice President at ValueXpress. “We are telling potential borrowers to act now, because if the economy improves in the next few quarters, the index that is used to set the interest rate for CMBS conduit loans is likely to go back up.”