Can Trump deregulation be an elixir for hotel lending?

Note: Over the next few weeks, Hotel Investment Today will publish 2025 outlook stories about development, management, deals and finance. Click here for Part 1 on the state of the hotel refinance market in 2025.  Click here for Part 2 on the state of the hotel acquisition market. Click here for Part 3 on the changing role of banking in hospitality.

NATIONAL REPORT — There’s optimism that 2025 will be a much better year for hospitality lending in the U.S. Some of that optimism is because of Fed rate cuts in the past few months that have helped reduce credit spreads and give a permission structure for more lenders to get back into the market.

But a big reason for the optimism is the feeling that the incoming Trump presidential administration will push for deregulating some rules enacted after the Great Recession of 2007-09 for banks, especially the Federal Reserve’s proposed changes to “Basel Endgame” rules, which regulate how banks with more than $100 billion in assets calculate the capital they must put aside to absorb potential losses.

The broad feeling is that deregulation will help banks and their ability to provide more capital for hospitality lending, but the issue is complicated and not without potential consequences.

Michael Straw

“It’s been a big topic and I think there’s only two countervailing views. On the one hand, deregulation as an overall policy increases capital market activity, which is good for borrowers overall,” said Michael Straw, executive vice president of capital markets for CBRE. “In that construct, you should see increased liquidity and competition for deals which should be beneficial, both from a structural perspective, but also from pure economics.”

But Straw said those same assumptions of deregulation as a policy are also what’s causing the treasury volatility that the market is seeing right now “because that same policy is also what people will say will drive the viewpoint that the current administration [Biden] is inflationary.”

He said that inflationary behavior is also what will cause some of the concerns surrounding treasury yields, “which may be a less important benchmark in the floating rate universal balance sheet, and using SOFR as our benchmark will be much more tied to the Fed behavior. But these are all related concepts.”

Bringing back banks

Ryan Bosch, principal for Scottsdale, Arizona-based Arriba Capital, said thoughts about deregulation also help spur optimism that regional and institutional banks become a bigger part of hospitality lending, which in turn will compress credit spreads.

Ryan Bosch

“In terms of the banking market, deregulation is a positive trend. We’re looking at that as a positive trend. We think it will loosen up capital flow out of banks, especially in the back half of next year.”

This was probably one of the worst years in terms of market share for regional banks and hospitality lending, Bosch said.

“They’re typically 45% to 55% of the market, and this year, they’re probably 32% to 33% of the market,” he said. “We think they’re going to not roar back [in 2025] but have a slow uptick and get back to where they’ve been historically. In the first and second quarters, bank markets will remain tight. Nothing moves quickly in the banking world. But the back half of next year, we’re going to start seeing some increased originations.”

“Pro-business” policies

Carlos Rodriguez, Sr., founder, chairman and CEO of Miami-based Driftwood Capital, said there’s little doubt that the incoming presidential administration will be pushing for fewer regulations and more “pro-business” policies, “so that may help with regulators not being as tough on commercial real estate.”

Carlos Rodriguez, Sr.

But Rodriguez said those regulations go far beyond just banking activities.

“There’s all sorts of regulators that affect our businesses. It’s not just bank regulations,” he said. “Obviously, regulations are good, to some degree, and checks and balances are good, to some degree, but excessive regulation is tough and it makes it difficult to do business. From getting building permits to entitlements for a new development, to financing or raising money. It permeates everything.”

New normal?

Jared Schlosser, executive vice president of hotel lending and head of CPACE, credit for Atlanta-based Peachtree Group, a private lender and investor, said he isn’t convinced deregulation will make a substantial difference.

Jared Schlosser

“That could happen, but also, is it too late? Because banking has shifted from being a consumer-to-consumer direct business where a bank directly lends to a developer to lending to groups like us,” he said. “That’s the biggest shift in 2024 that we saw, is that banks are lending to private capital, and private capital is putting out loans to developers and owners.”

Schlosser said he wonders if what was happening in 2024 is the new normal.

“I’m not sure deregulation can move as far and as quick as people think,” he said. “I think the new normal is that more and more private lenders are going to be taking a big part of the pie versus banks traditionally.”