In 2022, a year when many lenders were pulling back from the U.S. hotel industry, Stonehill invested $1.2 billion through loan originations and other financing.
In a video interview with Hotel News Now at the Americas Lodging Investment Summit, Stonehill President and Principal Mat Crosswy said 2022 was a productive year for his company, a commercial real estate direct lender.
Competition was heightened at the start of the year, but capital markets constricted as uncertainty grew over rising interest rates, he said.
That allowed balance sheet lender Stonehill to invest in the kind of deals it has historically pursued, specifically limited- and select-service hotels as well as compact full-service hotels.
By the end of the year, Stonehill had provided $800 million in hotel financing, $240 million in commercial property assessed clean energy loans and nearly $300 million in other real estate classes, a new venture for the company.
This year will be challenging as there is still a great deal of uncertainty, Crosswy said.
“A lot of business plans are going to be tough to underwrite just given where interest rates are forecasted to go,” he said. “We see an opportunity still in a number of different areas where we can deploy capital.”
Stonehill’s team will need to keep in mind several factors outside of their control when underwriting deals — such as where the Federal Reserve will settle on interest rates and inflation, he said.
The company's lending target is $1 billion this year, but market conditions may change that, he said. In C-PACE lending, the company expects to be “extremely active” and eclipse last year’s numbers with a goal of $300 million to $350 million. Outside of the hotel industry, it’s aiming at $600 million to $800 million in debt financing.
As Stonehill looks to future deals, the developers it works with will need to have experience, Crosswy said. The lender will dig into developers’ ability to carry a hotel through this period.
“With the limited capital, that means we’re seeing more opportunities, and we’re just being more selective in picking our spots and finding sponsors that we’ve largely worked with in the past and have proven track records,” he said. “Or maybe there are groups that we’d want to do joint-venture equity deals with.”
The rising cost of debt, the high price of construction and economic uncertainty are causing hotel developers to pull back, Crosswy said. However, there are still some developers who see this as the time to lock in costs and capitalize their interest reserves.
“There will be public and private equity that’s very much looking for these newer, shinier assets that will kind of stand alone,” he said. “I think you can probably achieve a pretty big premium if you were to sell in that environment two or three years from now.”
That’s not something every developer will be able to do, as there’s more risk involved in taking that approach, but such risks can bring good rewards, he said.