For a number of reasons funding is becoming harder to secure for new hotel construction projects, according to several recent news sources.
Last week the news service Reuters reported that “financial stress on regional banks, the largest lenders to hotels and other commercial real estate markets, has forced developers to postpone projects or find other creative ways to raise capital.”
Up to 59 out of a total of 98 hotel projects that have been paused this year, notes Reuters, “were put on hold since March, when the banking crisis started.”
Projects have been delayed across the country, including in the mega states of Florida, Texas, and California.
In May, city officials in Indianapolis agreed to take on a $510 million Signia Hotel project through the use of revenue bonds after bank financing proved elusive “due to the state of the market,” as reported by the Indianapolis Star.
Earlier this spring, the Irvine, California-based Shopoff Realty Investments announced it was pausing construction of its $550 million Las Vegas Dream Resort, due to construction financing issues.
The delay, said the Construction Dive, followed on “warnings from construction industry experts on growing concerns around financing,” especially after the closure of the Silicon Valley Bank and Signature Bank in March.
Speaking during a seminar organized by the Industry Real Estate Financing Advisory Council, Christopher Jordan, managing director with Wells Fargo Corporate and Investment Banking, remarked that many banks are currently experiencing risk aversion when it comes to financing certain projects.
“You have a capital and regulatory framework that’s very restrictive and very punitive, particularly for commercial real estate,” said Jordan.
“The capital requirements for large banks, and soon to be regional banks, are much, much higher than they’ve ever been,” he added.
For all of that, the industry research site Lodging Econometrics has reported a 9% increase in new hotel construction projects during the first three months of this year, with more than 5,500 projects in progress, representing just over 658,000 new rooms.
By Garry Boulard
