FDIC Reclassification Troubling for Hoteliers

[Marlo]

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