While lenders appear to be in lockdown mode for every other typeof commercial real estate, they seem to be more willing to open thevault for established upscale hotels. Financial services firmsbelieve that charm can be extended to new projects, depending onwhere they are located across the country.

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"It's just a pure flight to quality in this market," says AndrewColman, vice president with Walker & Dunlop in Bethesda, MD,whose Hotel Finance Group has arranged more than $300 million inloans to hotel development and management companies over the pastyear and a half. The volume of transactions in the luxury hotelmarket is double its normal level, rising from 25% to 50% thisyear, he says.

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Walker & Dunlop's latest transaction is a $65-millionrefinancing for the Ritz-Carlton Philadelphia, which the firm saysis based on the hotel's brand, strong asset quality and exemplaryowner sponsorship. Miami-based Gencom Group owns the 303-room,full-service luxury hotel that is designed to resemble Center Citylandmarks related to the nation's birthplace.

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Whether that translates to new projects remains to be seen. Forexample, New York-based Carlton Advisory Services is working withdevelopers of a proposed 225-room Waldorf-Astoria hotel inSarasota, FL, to get $100 million in bridge financing for landacquisition and pre-development costs. Lion's Gate Development andHilton Hotels Corp. are advancing the 18-story hotel as part of aplanned $1-billion mixed-use project called the Proscenium inDowntown Sarasota.

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Financing for luxury hotels can be difficult because of theirsize, though not impossible even in the current credit-squeezedenvironment, says Kenneth Herzberg, director with Carlton Advisory.Even upscale condominium units, which banks might not touch atnormal pricing levels, are favorable if they have a hotel's brandattached, he says.

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"We have some significant interest from some groups," Herzbergsays. "It's a combination of the brand, the sponsorship and howit's presented, and the overall valuation of the project at the endof the day. If it's a top label and it appeals to folks on theupper end of the scale, and it has a branded residential component,it's going to make a deal a lot easier."

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Other luxury hotel brands such as JW Marriott, Renaissance andGrand Hyatt are still able to get financing at good terms,according to Colman, whose family has a lengthy history in thehotel industry. Now that commercial mortgage-backed securities havegone from abundant to extinct in just the past year, hotelfinancing is now driven more by who and what owners and developersknow.

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"My relationships take on increasing value," Colman says. "Evenif it's a great deal, it's still tough, but they are gettingdone."

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