Hotel lending by European commercial banks: Survey results

The formation and expansion of the European Union over the past decade has had numerous impacts on the economies of its members and the global capital markets. For the banking and real estate sectors, the impacts have been slower to take effect as these industries remain subject to controls and traditions of the individual countries. Hotel companies and investors have aggressively moved ‘cross-border’ to develop, acquire and invest in hotel real estate. However, the availability of debt to finance these transactions and the transparency of this industry remain as issues. This study involved a survey of ‘western’ European banks both to identify those involved in hotel lending and to better understand key underwriting terms. The survey focuses on four basic issues: level of involvement in hotel lending; scope of lending in terms of geography and types; key underwriting terms; and, perceived impacts of the Basel II accords. The results are reported for major lenders (exposures greater than 500 million) and smaller lenders. The results indicate that the smaller lenders tend to be more conservative in terms of geography and product, but somewhat more aggressive in underwriting terms. It is also found that banks tend to focus only on their national markets and that the majority of lending involves traditional loan products held in the originators portfolio.