Paramount Capital Advisors' John Pascal talks about how bank deals are picking up and why closings are taking much longer.
Editor’s note: Based on our
perception of the increased volume of hotel refinances over the past few
months, Hotel Investment Today asked several brokers and debt players about the
state of the market. This is part 5 of a recurring series that features an
interview with John Pascal of Paramount Capital Advisors. Click here for Part
1. Click here for Part 2. Click here for Part 3. Click here for Part 4.
NATIONAL REPORT — While John
Pascal said the pipeline has picked up for hotel financing deals at Paramount
Capital Advisors, he says the deals are taking much longer to get done.
“For various reasons, our
pipeline has picked up a lot. Overall, for this year, our business will be a
lot stronger than last year,” said John Pascal, principal, Paramount Capital
Advisors, a subsidiary of Chicago-based Paramount Lodging Advisors. “The deals
that I’m working on are just taking forever… Deals that maybe should have
closed in the first quarter are probably going to close in the second quarter.”
Pascal said it isn’t necessarily
taking deals longer than it was a year ago, but that a lot of the agreements he’s
working on right now just happens to be financed through banks.
“I’ve just seen more and more
demand for bank financing,” he said. “The reason is that debt fund money is
more expensive, obviously, and it just so happens that the client base I’m
working with is more interested in conventional debt.”
Pascal said, despite his current
workload, bank debt still isn’t easy to find.
“I’m not going to sit here and
tell you that it’s easy to find bank debt these days. If you have good
sponsorship, with a good balance sheet and the deal itself is cash flowing,
then you can find a bank. But instead of calling 20 banks, you have to call
100 banks to find it. We are finding conventional lenders, but it’s not easy,”
he said, noting credit unions have also been more active in the hotel space as
well.
If you have good sponsorship, with a good balance sheet and the deal itself is cash flowing, then you can find a bank. But instead of calling 20 banks, you’ve got to call 100 banks to find it.
John Pascal
Due diligence
with banks just takes longer, he said. “They scrutinize deals more so
than debt funds… They just don’t move as quickly,” Pascal said. “Whereas with a
debt fund or CMBS… they’re a bit more entrepreneurial. They just move quicker….
There’s a more formal loan committee approval process with banks compared to
debt funds or CMBS.”
Capital stacks are
typically showing up in the 65% to 70% range, Pascal said.
“I’d say 65% is probably more
typical. But we are also seeing lenders go to 70%,” he said. “This construction
deal that I’m working on with this credit union, they said they’d go up to 75%,
which I think is a little bit unusual.”
Pascal said the reasons he’s
seeing for refis are typical. “Everybody’s been pushing the
PIPs off, and now they've got to do it. So, refinancing is a way for them to
fund those PIPs,” he said. “But also just the loans maturing, and they can’t
push it off any longer. The rates have probably gotten to a level I think will
be the norm.”
Credit spreads have
compressed recently, Pascal said. “We’ve
seen spreads and rates go down, in general,” he said. “It’s starting to make a
little bit more sense, from a financing standpoint, to acquire deals or
refinance. Certainly not at a level where it was three years ago, but it’s a
little bit more attractive.”