Ten years after the Great Recession, hotel owners and operators remain optimistic about the current business climate. In a recent survey, 93% indicated they are looking to buy a new hotel in the next 24 months; 78% plan to refinance in the next 12 months.1
Still, despite more than a decade of positive economic growth, hotel owners and operators face challenges.
Chief among these are:
• Tight labor markets that can hamper staffing and drive up costs.
• Greater competition, fueled by new hotels openings.
• Slower growth prospects, with real estate taxes, insurance premiums, and minimum wage thresholds rising
For middle-market owners and operators (those with 10 or more properties), the right banking relationships provide critical support to overcome these obstacles, stay competitive and achieve your goals. Following are five ways owners of select-service and extended-stay brands can optimize their banking relationships.
Whether you’re looking to acquire a new property or refinance an existing property, consider these best practices. Planning now will ensure you have the financial backing you need for the current economic cycle—as well as changing conditions in the future.
• Cement your relationships. With multiple properties in your portfolio, no single bank can execute every deal. But, working with a core group of lenders will expedite your financing, and help you execute projects efficiently. It’s smart to establish a primary lender, as well as two or three secondary resources.
• Involve a national bank. A national lender can offer ongoing access to capital, coast-to-coast service and significant industry experience that many regional banks may lack. These capabilities become especially important as you expand your footprint across multiple states.
• Find a lender with domain expertise. Hotel owners and operators face an array of challenges. Working with a lender that thoroughly understands your industry translates to both a streamlined process and a stronger surety of execution.
• Work with balance sheet lenders. A major source of fallout during the Great Recession occurred when originators sold loans to third-party servicers. Property owners struggled to adjust their terms (or even contact their servicer). Even in perfect conditions, working with multiple servicers adds time and effort for property owners and operators.
Balance sheet lenders like Wells Fargo maintain adequate capital to both originate and service your loans. That means a single relationship to manage, capital you’ll never outgrow, and greater peace of mind.
• Plan now to weather difficult conditions. While still optimistic about current conditions, hotel owners and operators are more cautious about the future. Looking ahead, 68% foresee a national recession in 2020 or 2021. 1 That makes 2019 a good time to evaluate your current loans for optimal terms. The ideal lender will work with you to understand the market and show you various options.
In an extremely competitive industry like hospitality, it often seems the only constant is change: new properties, new amenities, new audiences. Forming trusted financial relationships help owners and operators navigate what’s here now—and what’s next—with confidence.
Scott Andrews is a managing director at Wells Fargo Commercial Capital. He oversees Hotel Franchise Finance, a part of Specialty Finance. Based in Scottsdale, AZ, Hotel Franchise Finance provides real estate secured financing to multi-unit owners and operators of premium branded select-service and extended-stay franchised hotels nationwide.
1Hotel Business, “HB on the Scene: LIIC Reveals Top 10 Lodging Trends at Meet the Money,” May 8, 2019
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