Developers dropped plans for a 230-room hotel in Boston's Leather District last month, citing the difficult financing climate.
Hotel industry debt markets are starting to recover from COVID-19 shocks but lenders remain skeptical about construction loans until there’s more clarity about post-pandemic travel activity, according to a brokerage report.
JLL said it’s working on $2 billion in financing assignments as the capital markets reawaken from a year-long slumber.
“There’s been a slow easing and for the last two or three months, we’ve seen more significant movements in the debt markets,” said Alan Suzuki, managing director at JLL Boston.
But lenders are unlikely to finance many major hotel developments until hospitality markets establish a track record of occupancy and room rates in the post-pandemic environment.
“In a time like this, if they’re going to start lending, it’s to hotels that have a proven historical cash flow,” Suzuki said. “New construction is the most risky loan, and that’s the last to come back.”
Hotel proposals in Boston since the onset of COVID-19 include a 134-room hotel on Cross Street in the North End and a 357-room hotel tower at the James Hook & Co. lobster pound property.
But plans for a 230-room hotel in the Leather District were scrapped in February by developers who cited the unavailability of financing in their decision to switch to a residential proposal.
The JLL report said drive-to leisure resorts and trophy-style hotels and luxury resorts remain in demand for acquisitions. Debt funds are the most active lenders, and are willing to provide up to 80 percent leverage for top-level properties.
Greater Boston’s hotel market historically draws from a balanced mixture of leisure, business and convention sources, all of which have been severely affected by the travel downturn. New England drive-to leisure markets are expected to rebound first, following the lead of 2020’s summer travel patterns.
“If you learn anything from last year, in the middle of the pandemic people were out there, certainly going to the beach or the mountains,” Suzuki said.
