9.19.11: FDIC Reclassification Troubling for Hoteliers

Recently, Jay Bhakta, who runs the Mississippi office for ValueXpress, and Michael Sneden, Executive Vice President of ValueXpress, traveled to Houston, TX to assist a borrower in the closing of his CMBS conduit loan secured by a hotel as well as assist another hotel borrower refinance a conventional loan into an SBA 7(a) loan.  Coincidentally, the bank being paid off with the CMBS conduit loan for one transaction is the same bank that converted the conventional loan into an SBA 7(a) loan for a second borrower.

The conduit borrower did not want us to disclose the payoff of the CMBS conduit loan, fearing the lender would be upset with the payoff.  Oddly enough, the reverse was true. Recently, the FDIC has been encouraging the re-classification of hotel loans as “commercial real estate,” similar to other income-producing loans such as office buildings and retail centers, in which rentals from tenants are the primary source of loan repayment.  Formerly, there was flexibility to classify owner-operated hotels under another category, known as “commercial and industrial” loans.  The reclassification has negatively impacted banks that are significant hotel lenders by increasing the concentration of “commercial real estate” loans as a percentage of capital by adding hotel loans to the total.

The banker we met with was happy to see the loan pay off as it helped reduce the bank’s commercial real estate concentration, which is well in excess of regulatory guidelines.  Our assistance in the conversion of portfolio hotel loans into SBA 7(a) loans will help also, since the 75% guaranty provided by the SBA reduces commercial real estate loan exposure for that loan by 75%.

“The bad news is that hoteliers are facing a significant reduction in hospitality lending by community banks in their markets,” commented Jay Bhakta. “The economic recession and credit challenges in the banking industry have already diminished hotel loan demand at banks, and the regulatory reclassification now just makes matters worse,” said Bhakta.

This entry was posted in CMBS Conduit Loans, Michael D. Sneden, News & Recent Closings, SBA 7(a), The Banker's Mortgage Conduit, Valuexpress and tagged , . Bookmark the permalink.

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