The U.S. hospitality industry is on the road to recovery, so how will hotel construction financing fare for 2016?
After 2008, the hospitality industry took a turn for the worst. But finally, after eight years, the industry is riding a wave of recovery! Hotel rooms under construction are up nearly 22 percent on a yearly basis. Demand, however, is still outpacing supply and is predicted to do so for at least another two years. As optimistic as this sounds, there are two factors that will continue to affect hotel construction through 2016: projects that meet market trends and demands and tight financing.
What Can We Expect from Hotel Construction Financing?
- Projects that meet market demands and that are also backed by strong management will have the best chance to gain loan approval. Hotels that offer a special experience are increasingly in demand over hotels that offer a less-than-stellar stay. Millennials value green, healthy, local, and authentic brands—which have responded with new property improvement plans that often require franchisees to reinvest in renovations.
- Tight financing continues to cause hotel construction to lag behind other commercial real estate sectors. The number of lenders active in the hotel construction sector remains limited, despite the availability of hotel financing significantly growing. This is because hotel properties are not easily converted into other things. They're known as “special properties,†making financing more difficult as it is seen as too high of a risk. Many commercial lenders continue to operate with tight financing, often requiring hotel owners to pay a down payment of 35 to 50 percent.
Despite the tight financing that many lenders adhere to, the hotel sector is growing, and funding will eventually return. Be a part of the growth! Renovate your property with hospitality construction services from Parkwest General Contractors. Contact us to build your business.
