A new report from JLL says that debt funds continue to be the most active lender types, but the firm has seen a "significant" increase in banks, insurance companies, and CMBS originations for hospitality deals.
"A bank deal that would have priced in the high 300s/low 400s in January, would price in the high 200s/low 300s today (and could be as low in the high 100s/low 200s for the highest quality deals); similarly, a debt fund deal that would have priced in the low/mid 500s in January would price in the low/mid-300s today," JLL notes in the report. "Additionally, we've seen financing transaction volume accelerate exponentially since that start of the year…Based on the amount of available liquidity and improving fundamentals, we expect this strong pace to continue through the balance of the year."
In addition, leverage levels have increased, with banks and insurance companies willing to push leverage to 65% from a low earlier this year of 55%. Debt funds are also pressing leverage to 75 to 80% for quality product, according to JLL, but they prefer to keep levels at 70% or lower. Capital is lowest-priced at banks, with the exception of CMBS SASB securitizations.
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The difference between the highest and lowest spread for a single deal, assuming the same leverage and lender type, can be as wide as 50 to 100 bps, according to JLL. Spreads may be 100+ bps tighter when compared to lesser-favored assets.
JLL also notes that construction lending markets are "selectively re-opening," with a focus on select assets and markets. Loan structures are also becoming more borrower-friendly.
"As market fundamentals improve and as spreads on existing asset debt continue to compress, we are expecting the construction lending markets to open further," the report notes.
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