Commercial Real Estate: In Hotels, Heller Checks in as Others Check Out

By Hochstein, Marc | American Banker, November 9, 1999 | Go to article overview

Commercial Real Estate: In Hotels, Heller Checks in as Others Check Out


Hochstein, Marc, American Banker


Heller Financial Inc. is aggressively building up its hotel lending when others are avoiding it.

The Chicago-based finance company last week said it had embarked on a new program to finance hotel acquisitions and turnaround projects. It expects to close $300 million of such loans next year -- equal to the amount of hotel loans it originated in the last three years.

In 1997 and 1998, when many lenders jumped into the hotel sector, "we backed out," said Michael Rowan, managing director of specialty businesses at Heller. "Now that everybody's backed out, we're going in."

Ever since the global financial market meltdown of late 1998, money has been much harder to come by for hotels. After last year's crisis subsided, the commercial mortgage-backed bond market, a key source of long-term financing, "opened up, but not for hospitality," said Roger S. Cline, director of hospitality consulting services at Arthur Andersen LLP.

Hotels are considered one of the riskiest types of real estate to lend against. Whereas an office building might have tenants with leases as long as 20 years, hotel rooms by their nature turn over every few days. And a foreclosed hotel requires more active management than a property with long-term leases.

In its new push into hospitality lending, Heller will make loans of $5 million to $20 million for "middle market" hotels, meaning brands such as Holiday Inn, Marriott Courtyard, Embassy Suites, and Homewood Suites, around the country. It will hold the loans in its portfolio.

Mr. Rowan said Heller will limit its risk through selectivity. For one thing, it will only finance existing properties, not new construction. …

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