Cheap Hotel Debt Capital and the Current Interest Rate Environment

By Gavin Davis Managing Principal, H-Fin Capital Advisors | October 28, 2008

The U.S. appears poised to be coming out of one of the best interest rate environments of our lifetime, where we saw the Federal Reserve cut the Federal Funds Rate by 500 basis points from 6.00% to 1.00% in a total of 13 rate cuts over 30 months between January 2000 and June 2003.

This was done in an effort to stimulate an economy weakened from the crash, 9/11 and an economic recession (11 of these cuts accounted for 450 basis points of the move in approximately 11 months time), the continued improvement of overall hotel industry and secondary hotel mortgage market fundamentals are fueling high levels of capital into the market. In turn, interest rate spread levels are continuing to compress, which bodes well for borrowers.

Short-term Interest Rates Continuing To Rise

Against a back-drop of relatively benign inflation data (excluding energy and housing), positive signs of economic stability and growth have spurned the Federal Reserve to increase the Federal Funds Rate 175 basis points in the past year from 1.00% to 2.75%. Wall Street economists are predicting further rate increases in the foreseeable future and one of our most utilized interest rate predictors, the forward US Treasury yield curve, supports this generalization, having priced in interest rate increases over the next several quarters.

Short-term Treasury and LIBOR rates in the open market have exhibited similar levels of increase as the Fed-controlled Federal Funds Rate. For example, 3-month LIBOR has increased from 1.11% twelve months ago to over 3.12% at press time.

Long-term Interest Rates Give-back on Heels of Rising Oil Prices

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Coming up in June 2019...

Sales & Marketing: Selling Experiences

There are innumerable strategies that Hotel Sales and Marketing Directors employ to find, engage and entice guests to their property, and those strategies are constantly evolving. A breakthrough technology, pioneering platform, or even a simple algorithm update can cause new trends to emerge and upend the best laid plans. Sales and marketing departments must remain agile so they can adapt to the ever changing digital landscape. As an example, the popularity of virtual reality is on the rise, as 360 interactive technologies become more mainstream. Chatbots and artificial intelligence are also poised to become the next big things, as they take guest personalization to a whole new level. But one sales and marketing trend that is currently resulting in major benefits for hotels is experiential marketing - the effort to deliver an experience to potential guests. Mainly this is accomplished through the creative use of video and images, and by utilizing what has become known as User Generated Content. By sharing actual personal content (videos and pictures) from satisfied guests who have experienced the delights of a property, prospective guests can more easily imagine themselves having the same experience. Similarly, Hotel Generated Content is equally important. Hotels are more than beds and effective video presentations can tell a compelling story - a story about what makes the hotel appealing and unique. A video walk-through of rooms is essential, as are video tours in different areas of a hotel. The goal is to highlight what makes the property exceptional, but also to show real people having real fun - an experience that prospective guests can have too. The June Hotel Business Review will report on some of these issues and strategies, and examine how some sales and marketing professionals are integrating them into their operations.