With an eye toward creating a presence in the lodging space, Berkadia Commercial Mortgage, LLC, last year brought on board Andrew (Andy) Coleman as senior managing director to lead its newly formed Hotels & Hospitality Group, which provides financing solutions to commercial real estate developers and owners across the U.S.
With more than 25 years of hospitality-financing experience, Coleman has closed on more than $6 billion during his career. Prior to joining Berkadia, Coleman served with Walker & Dunlop, heading its hospitality division.
Berkadia has a long-standing reputation in multifamily and commercial financial circles. What was the vision behind creating a Hotels & Hospitality Group and why was helming it appealing to you? The industry needed a shake up. Historically, in commercial real estate, client relationships have often felt very transactional and fee-based. The creation of a specialized group was a natural step for Berkadia, which is a joint venture of Berkshire Hathaway and Leucadia National Corp.
When I joined the team in Bethesda, MD, last year, I reached out to professionals at other Berkadia offices to see how I could help. Many of their multifamily clients also were investing and developing in the hotel space and needed a devoted team they could rely on. Now our focus is shifting to expanding our physical presence in key markets across the country to make sure that everyone has access to our professionals when they need us.
I have been working in the hospitality industry my whole life; my family owns and operates the Phoenix Park Hotel and the Dubliner restaurant in Washington, D.C., and my sister, Stephanie Linnartz, is EVP/chief marketing and commercial officer for Marriott International, Inc. Working in the family business taught me the importance of managing personalities so that everyone is focused on managing the greater goal: servicing our clients. I truly think of Berkadia as a family and, from top to bottom, we’re all focused on the teamwork it requires to build strong, lasting relationships with our clients and meet all of their needs—whether that be financing, equity, investment sales, advisory, servicing or a combination. Our clients know they’ll be working with one integrated team with comprehensive expertise, rather than with disparate individuals.
What were some of the initial challenges in bringing this new platform to the attention of Berkadia’s target group? While we’ve been able to grow our hotels and hospitality client roster, we needed to raise awareness that Berkadia’s offerings expanded beyond traditional multifamily. We also encountered the historical misalignment of client-broker interests in the hotel sector. Clients had grown accustomed to receiving transaction-oriented services—that was a real miss in the hotel and hospitality space. Our belief is that fostering strong client relationships is the best way to view their goals and create long-term value as opposed to short-term gains.
How are you parlaying your previous experience at Walker & Dunlop to advance the platform? It boils down to the value of teamwork. I was fortunate enough to bring a team of knowledgeable professionals with me when I joined Berkadia. The relationships we carried over spoke volumes about the connections we were able to create and nurture and allowed us to support Berkadia’s existing multifamily, office and retail clients who also owned hotels.
A senior team of hospitality/financial industry veterans—John J. DePaul, Mark Morris, Kyle Stevenson and David Weymer—was brought on board in January as managing directors to bolster the new platform. What advantages has this brought to Berkadia and in supporting your role? These individuals—along with Adrienne Kautzman, who joined our group as a director in June—have been tremendous assets and bring instant credibility to our platform. Combined, we have more than 150 years of experience in hotels and hospitality and a shared vision of what we want our platform to be for our clients.
Their presence has allowed us to focus more strategically on developing our next generation of leaders. I have been very fortunate to be able to spend just as much time investing in the professional development of our younger associates as I have investing in my own, and that’s led to a true team environment. Our clients can feel this genuine enthusiasm and are energized by our camaraderie.
What sort of activity have you been seeing in terms of demand for the Group’s services, and who’s coming to Berkadia’s new Hotels & Hospitality Group for these services? We’ve seen very strong activity right off the bat on the mortgage banking side. There is an incredibly high demand for equity from both existing and new hotel clients—questions concerning the availability of equity capital are often the first questions we hear in meetings. Another trend we’re seeing is that construction dollars are more difficult to come by and so there have been more short-term, floating-rate repositioning loans.
There’s also been a real ramping up of activity on the investment sales side due to our team’s ability to assist in both debt and equity for potential buyers. In order to holistically address client needs, our team needs to be able to solve every single problem that comes up, be it on the mortgage banking or investment sales side. Due to our team approach, we’re able to accomplish and provide those solutions.
What does the financial landscape look like from the Hotels & Hospitality Group’s perspective? We are continuing to see the eagerness of life company partners to provide incredibly attractive terms on sub-60% loan-to-value stabilized hospitality products. There’s also some settling in the CMBS markets right now, and Berkadia has remained incredibly active in this space. Lenders are providing 70% loan-to-value deals at interest rates in the mid-4% range.
We’ve also observed the emergence of debt-fund providers who can step into financing for hotels that are going into a PIP, coming out of a renovation or are not quite stabilized.
Finally, for the first time in a while, there are capital sources available for a broad range of borrower needs.
What are some of the key concerns you’re hearing from clients? One of the top concerns is overbuilding in certain markets and general supply fears. There’s a tremendous amount of new supply coming into the marketplace, particularly in certain cities, such as NYC.
While the CMBS markets are now stable, they are facing long-term uncertainty, which makes our clients wary. CMBS, historically, has been the top provider of long-term, fixed-rate hotel financing and, over the last year or so, the market has been particularly bumpy. Berkadia purposefully works with bank lenders that have strong balance-sheet capabilities in case of continued turmoil.
We also have our eyes on interest rates. Long-term, fixed-interest rates on hotels today are at or near all-time lows. Clients are clamoring to get their properties up, open and stabilized so as to reap the benefits of the current interest-rate environment. Life company, traditional bank, debt-fund and CMBS lenders are making efforts to offer attractive structures for the right deals. We do not expect rates to remain low, and we are advising clients to carefully consider today’s market conditions and plan for the future. Protecting hotel assets with stable, low-interest-rate debt is one of the top indicators of successful, long-term ownership.
What do you consider to be the most significant changes you’ve witnessed from when you started in the industry to now? In my 25 years in the industry, the sheer number of players in the space on the ownership side is a major change I’ve seen. Aside from that, there has been a game-changing influx of new technology. Developments in technology have led to increased transparency in the markets, and I fundamentally believe this is a net positive. Whether it is owners looking to access financing, customers looking for pricing advantages and better experiences, managers looking to maximize efficiencies, or brands interested in tracking the habits of guests, all of these things have been improved as a result of technological advancements in the hospitality space.
Where do you see opportunity ahead for Berkadia’s Hotels & Hospitality Group? I’m really excited about our efforts to grow our team’s presence to truly cover and have boots on the ground from coast to coast. Adrienne Kautzman in our Phoenix office is helping to grow our footprint in a region that’s really our gateway to the West Coast. We’re also keeping a close eye on how we can establish ourselves across the Midwest and Southeast regions of the U.S. and provide our clients with the services they need. There’s great opportunity to continue leveraging existing Berkadia clients on the multifamily or commercial side who also have hotel and hospitality needs, while expanding our reach. HB