When HVS asked lenders to identify which sorts of hotel projectsthey would consider for loans currently, 75% said that existingchain-branded hotels were most likely to get loans. Coming in at68% was refinancing existing hotels; at 45% wasrenovation/expansion of existing hotels; at 34% was existingindependent hotel acquisitions; and at 25% were new constructionhotels.

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When HVS asked lenders to identify "the maximum loan size youwould currently consider for lodging property loans," 39% said $1million to $5 million; 48% said $5 million to $10 million; 48% said$10 million to $20 million; 45% said $20 million to $40 million;25% said $40 million to $80 million; and 14% said $80 million plus,indicating that few lenders show interest in large projects.According to feedback provided by lenders, the following tablesummarizes the range and median of the loan-to-value ratiosconsidered appropriate for each of the loan size ranges indicatedin this paragraph.

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For all but the smallest loans, the loan-to-value ratioscurrently considered acceptable by lenders is generally in therange of 50% to 65%, according to HVS.

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Several questions in the survey also asked lenders to identifycurrent lending parameters such as the most appropriatedebt-coverage ratio, amortization period, loan term, and interestrates they are currently considering for hotel loans. The findingsare summarized as follows and represent the most frequent responsesof lenders who participated in the survey.

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In the current environment according to HVS, the vast majorityof lenders are only willing to consider recourse loans andsignificant collateral is required. Therefore, HVS asked surveyrespondents to identify "what collateral is required for a typicalhotel loan," "what are the most important characteristics thatlenders seek in a borrower," and "what are the most importantcharacteristics that lenders seek in a hotel project." The keyfindings are summarized below.

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Required collateral for a hotel loan include: land,improvements, FF&E (furniture, fixtures and equipment); firstmortgage, additional shareholder or management operator guarantees;personal guarantees, letters of credit, ground lease; and high cashequity, lien on shares and all assets.

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Important characteristics for a borrower include: Ownershipexperience with proven track record; depth and structure ofmanagement team; strategy and risk policies; capital, financialstability, access to equity, net worth; and integrity, credithistory, brand support, reputation.

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Important characteristics for a hotel project include: Reliableprojections of future operating performance; market, location,demographics; brand, experience, sponsor, asset's size, type, age,and operator; loan structure, appropriate leverage and DCR; CapExand maintenance schedules and history; competitive existing supply,new supply; and solid history of cash flow and a strong balancesheet.

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"As many believe the economy has begun to emerge from recessionin early 2010, significant uncertainty remains about the economyand many lenders are being affected by continued declines in hotelvalues backing their existing loans," says HVS. As a result, theavailability of loans in the hospitality sector continued to belimited. Although economic conditions have stabilized and showearly signs of recovery, investors in the hospitality industry arestill cautious with capital, HVS says.

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With loan-to-value ratios remaining around 50% to 65% andinterest rates increasing to near 8.5%, HVS expects to see arelative increase in the number of all-cash transactions in thehospitality sector compared to recent years. "Most banks andnon-bank lenders have remained selective in their loan underwritingand many are preserving capital for other uses."

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The fact that lenders continue to require high levels of equityand collateral from borrowers is likely to lead to a significantdecline in supply growth in the near-term, says HVS. "Moreover,many existing hotels will need to be refinanced in the next threeto five years. If loan-to-value ratios remain at current levels,this implies that a large number of owners will need to contributeadditional equity to their hotels or convince lenders to extend theterms on existing loans."

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.