Some sellers have wondered if there is liquidity in the hotel loan sector for sales in 2021. In the first three months of 2021, we are seeing strong demand driven by a great deal of capital coming into the market. The market is routinely witnessing $100MM portfolios for sale with more investors participating each time. Our most recent closed offering, discussed below, had 380 investors under NDA, 156 investors in full due diligence, and received binding, non-contingent bids from 25 distinct investor groups.
Investors in hotel loans are looking at the market and pricing loans in a variety of ways:
At the top of the spectrum are portfolios with five key indicators:
- Limited service with national flags with either interstate or destination locations
- Built in the last five years or with recent PIP’s
- Very strong 2019 operating performance
- Good pre-Covid Loan-to-Value and Debt Service Coverage
- Strong management team & sponsorship
At the bottom of this spectrum are CBD luxury, convention, and airport hotels.
During the 3rd quarter of 2020, DebtX sold an $86MM 11 loan portfolio which exhibited all five attributes and traded to two different buyers at an average pricing in the mid-’90’s.
Next in line are the deals that lack one or more of the above five key indicators.
The $97MM, 22 loan portfolio we traded in the 4th quarter of 2020 was a good mix of three or more of those indicators and traded to six different buyers at an average price in the mid-’80’s. All winning bidders were in the ’80’s, so a pretty tight band.
An additional $25MM 4th quarter portfolio was 6 loans and represented the widest range of attributes, as the seller has been an active acquirer of smaller banks, and the loans originated by those banks did not have the consistency of underwriting present in the first two portfolios. The loans traded from a low in the low ’70’s, to a high in the low ’90’s.
Our $94MM portfolio, closed March 11, 2021, is also a mix of situations.
This 11 loan portfolio had four relationships. Several properties exhibited either three or four of the five key indices and we estimated the portfolio would trade in the low ’80’s. One particular property is a major city CBD luxury rehab of an historic former office building by a minor, but well-regarded operator, where the property only opened up in November 2019, and was nowhere near stabilization. (Another advisor had told the seller the loan was not saleable.) We estimated a trade range in the high ‘60’s to low ‘70’s.
We had 156 investors in full due diligence and received bids from 25 separate investor groups. We closed the four pools with two different investor groups, at a price which represents an 8% premium to the sellers undisclosed reserve price. (Of note, the CBD luxury traded in the high ‘70’s and we received seven bids, with three in the ‘70’s.)
If you are interested in a no-cost, no-obligation evaluation of your hotel portfolio, please Contact Us.