FDIC Reclassification Troubling for Hoteliers

Posted: October 4, 2011 in Uncategorized
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Recently, the FDIC has been encouraging the re-classification of hotel loans as “commercial real estate,” similar to other income-producing loans such as office buildings and retail centers, in which rentals from tenants are the primary source of loan repayment. Formerly, there was flexibility to classify owner-operated hotels under another category, known as “commercial and industrial” loans. The reclassification has negatively impacted banks that are significant hotel lenders by increasing the concentration of “commercial real estate” loans as a percentage of capital by adding hotel loans to the total.

The banker we met with was happy to see the loan pay off as it helped reduce the bank’s commercial real estate concentration, which is well in excess of regulatory guidelines. Our assistance in the conversion of portfolio hotel loans into SBA 7(a) loans will help also, since the 75% guaranty provided by the SBA reduces commercial real estate loan exposure for that loan by 75%.

 

“The bad news is that hoteliers are facing a significant reduction in hospitality lending by community banks in their markets,” commented Jay Bhakta. “The economic recession and credit challenges in the banking industry have already diminished hotel loan demand at banks, and the regulatory reclassification now just makes matters worse,” said Bhakta

To learn more, please visit our website at http://www.commercefinancialinc.com

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