The Holiday Inn & Suites Orlando SW - Celebration Area Hotel delivered the right numbers to secure a $14.5 million refinance from One Florida Bank. Berkadia shops local to refinance Orlando-area hotelBy Mary Scoviak | April 21, 2023Share Community banks frustrated by office and retail want to play in the hospitality market, but loan applicants have to tick every box to move them beyond their core sectors. ORLANDO -- Smaller deals like the $14.5 million refinance of the full-service, 444-key Holiday Inn & Suites Orlando SW – Celebration Area Hotel are making demonstrable headway in navigating the hurdles to finding affordable debt. Applicants with a strong story to tell are widening the competitive net from regional to community banks not only to source debt but to get it on favorable terms. Although many banks like the fundamentals of the hospitality sector at a time when office, retail and some sectors in multifamily are struggling, only A-list projects need apply since these lenders can easily afford to take a pass on risky, non-core loans.“Lenders love hotels right now because they have some of the best cash flows to cover debt service,” said Michael Weinberg, managing director of the commercial real estate firm Berkadia, which arranged the Holiday Inn & Suites refinance. “Office has moved to the bottom of the list and even multifamily and industrial are hard to execute on because of how tight cash flows and cap rates are for those property types. So, we are seeing a surging demand for retail and hospitality right now from debt capital providers.”Stress the right fundamentalsIn an interview with Hotel Investment Today, Weinberg went behind the trend to identify the stats and strategies that will get a hearing from this expanding lender network.As with any successful refinancing, working with these lenders starts with covering the basics: building a relationship with the lender and having the right asset fundamentals in place. “We went to [Orlando-based] One Florida Bank [for the Holiday Inn & Suites refinancing] because they are a community bank that values relationships. They make the process very easy to close and make it equally easy to be partners for the term of the loan,” Weinberg said. “They don’t do a ton of hotels but will for the right sponsors.” One Florida Bank declined to comment on its approval of the five-year, fixed loan for the hotel.Michael WeinbergGood sponsorship and “great cash flow” were key factors in getting approval for the Holiday Inn & Suites Orlando SW – Celebration Area Hotel, according to Weinberg but “the positioning on this deal was low leverage and very reasonable loan/key metrics.” Toronto-based Palm Holdings purchased the 1984-era hotel in 2017 in the initial phase of what has become an ongoing growth push in Florida. Palm’s $6 million renovation in 2019 played into the hotel industry’s record-setting tailwind.“Market performance was a critical factor in capturing lender interest,” Weinberg added. So was the property’s location. The hotel has proximity to many of Orlando’s lodging demand drivers including Walt Disney World Resort, Universal Studios Resort and the Orange County Convention Center. It also benefitted from aggressive market recovery that has boosted Orlando’s hotel ADRs 24.9% above 2019 levels and increased RevPAR by 21% over that same period, according to STR data.Best terms, rateWeinberg outlined what borrowers can expect in terms of the numbers. “Rates have moved so fast that frankly anything in the 6% range is a solid execution for owners,” he said. “We tell clients they need at least a 12% debt yield and lower than 60-65% LTV to even get banks’ attention right now.”...mandated deposits have become a gating issue for many to even quote a deal, which is a newer phenomenon.Michael WeinbergShare this quoteAnd what about the owners who can’t make it over that bar? “If a client needs more than 65% LTV/LTC these days there is a very liquid preferred/mezzanine market that can help them fill the gaps needed. We are doing a lot more structured capital stacks because of the need and the liquidity that exists in the space,” he added.Recourse and deposits are the structural items Weinberg sees being negotiated the most right now with the local and regional lenders. “They are all asking for 10-15% of the loan amount in deposits because their loan-to-deposit ratios have gotten skewed lately with the banking issues with Silicon Valley Bank and other institutions which has caused depositors to move their money to perceived ‘safer’ banks. So, mandated deposits have become a gating issue for many to even quote a deal which is a newer phenomenon,” he said.Refi forecastWhether any measurable relief to the refinancing challenge will come before the end of this year lies in the hands of the Federal Reserve. “When do they pause or reduce rates? When that happens, the market will react favorably,” Weinberg said.Until that happens, he said, the secret sauce to succeeding in getting refinancing comes down to asset level performance in leading markets such as Florida, proof of being a strong guarantor with experience in the market and having robust cash flow.