How The Banking Crisis Has Changed The Hotel Industry
By Nitin Shah Chairman & CEO, Embassy National Bank | July 22, 2012
These days, hotel financing is a story of good news and "not-quite-as-good" news. The good news is that more lending is slowly becoming available, while the "not-quite-as-good" news is that tight underwriting standards have become the new normal in banking.
While there are numerous factors that affect the lending marketplace and loan decision-making, this column will examine four banking realities that are receiving renewed attention due to the economic and banking crisis – and that directly impact hoteliers by limiting the availability of funds for hotel loans.
These four procedures are detrimental to the country's approximately 51,000 hotels, which is why many leaders in the hospitality and the banking industries – including me – are actively working to change them. Let's look at the details.
1. Hotel Loans Are Classified As "Special Purpose"
For banking purposes, hotel loans are classified as "special purpose" loans – namely, they are considered to be made on behalf of a property that has only one use and is not easily converted to another use without significant capital investment.
This puts hotels in the same category as car washes, gas stations, churches, funeral homes, restaurants, golf courses, marinas, and tennis clubs.