Independent Banker - December 2021 - 20

PORTFOLIO
of hotels since 1976, and the Patel
family still owns several hotels.
The community bank has been an
active hospitality lender for nearly
all of its 35-year history.
" Because of our expertise, we
are able to pinpoint that this is a
good opportunity for the bank,
and we are going after those
opportunities, " Sushil Patel says.
Part of the demand on the refi
side has been fueled by low interest
rates, as well as a desire from
borrowers to move away from
their current lender, he says. In
some cases, loans were held by
private equity firms or commercial
mortgage-backed securities (CMBS)
servicers that treat the borrower
very differently than a relationshipfocused
community bank.
" That has served as an impetus
for a lot of people to move their
loans, " Sushil Patel says. " The more
people get to know our bank, the
U.S. forecast: A multiyear recovery
Indexed to end of 2019, 2019-2024 forecast
Demand
100.0
98.1
88.0
73.5
49.9
104.0
OCC (TRI*) ADR RevPAR (TRI*)
2019
2020
2021F
2022F
2023F
*Reflects Total-Room-Inventory (TRI) methodology, which assumes no temporary hotel closures.
Source: STR, 2021 © CoStar Realty Information, Inc.
2024F
more they want to do business with us,
because they realize they are talking
to a community bank and a hotel bank
that knows what it is doing. "
Hospitality demand:
Now vs. 2020
Occupancy:
+31.5%
Revenue per available room
(RevPAR):
+47.3%
+12%
Average daily rates (ADR):
Source: 2021 forecast from STR and Tourism Economics
Lenders tighten underwriting
Although community bankers see
opportunities to assist borrowers and
make good loans, they are mindful of
the risks in what remains a precarious
recovery. One of the ways bankers are
providing needed capital to borrowers
is by utilizing SBA 7(a) loans. The
SBA provides a 90% guarantee, and
banks can get an attractive premium
when selling the guaranteed portion.
The main focus for Mountain Pacific
Bank has been managing its existing
book of hotel and motel loans. As of
September, the community bank had
$108 million in hotel and motel loans,
of which $59 million are SBA 7(a)
loans, including about $42 million
that the bank has sold. In addition,
the bank has made two new 7(a)
loans this year, a $4.4 million loan
for a motel on the Oregon coast and a
$8.3 million loan for two Motel 6's.
Mountain Pacific Bank has
tightened its debt service
requirements. Pre-COVID, the bank
was underwriting hotel loans with
debt service coverage ratios (DSCRs)
of about 1.2. Now those ratios are 1.3
or 1.4. In both cases, the borrowers
had outside sources of income that
weren't related to hospitality.
" That is helpful to support the loan
request, " Duffy says. The community
bank has had borrowers establish
reserve accounts with a year's worth
of payments that are held until cash
flow reaches a certain predetermined
level to meet their debt service
coverage ratio, he adds.
State Bank of Texas is mitigating
some of the cash flow risk by
supplementing the loan with a
required interest reserve or payment
reserve account or taking additional
collateral for the loan. Lenders have to
look at the revenue and performance of
the property over the past six months
compared with its peers in the market
or submarket, Sushil Patel says.
Getting to know the borrower is the
most important piece, followed by a
thorough underwriting of the property
and business. " For us, nothing really
fits a box, " Patel adds. " We are going to
look at who we're lending to first. "
Beth Mattson-Teig is a writer
in Minnesota.
20 Q ICBA Independent Banker Q December 2021

Independent Banker - December 2021

Table of Contents for the Digital Edition of Independent Banker - December 2021