Following a strong year for financing in 2015, the debt capital markets have become increasingly volatile in early 2016, which has particularly impacted hospitality lending. According to JLL Hotels and Hospitality Group’s latest report, there continues to be strong liquidity for hospitality loans, but borrowers will experience greater volatility and higher pricing particularly in CMBS, and to a lesser degree with other lender types.
- The CMBS market has experienced increased volatility since the beginning of the year with average loan pricing increasing by approximately 40-60bps, as fixed rate loan coupons are now in the very high four percent to low five percent ranges
- This volatility may continue over the near term as the market deals with macroeconomic issues and new regulatory requirements, particularly risk retention rules that become effective in December
- The floating rate CMBS market is effectively closed except for single-borrower loans approximately $300mm or larger
- CMBS loan origination volume has declined meaningfully in early 2016 as a result of the current market volatility
- Debt funds have continued to expand their presence in the hospitality financing markets and have partially back filled for the reduction in floating rate CMBS loan issuance
- Many debt funds have increased pricing by 50-75bps since the start of the year, which is in part due to wider CMBS spreads and increased demand for debt fund capital following the reduction in CMBS origination volume
- Mezzanine lenders have become much more selective and in many cases have widened pricing by 150-200bps since the beginning of the year
- Banks and life insurance companies have been less affected by the widening in CMBS spreads, and in some cases have held their pricing
- However, where the market will absorb higher pricing, banks and life insurance companies have increased loan spreads by approximately 25bps
Interested in hearing more from JLL’s experts? Listen to the recording as JLL’s Hotel Investment Banking team provides their insights and answers questions on the current state of the market.