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The fight to increase access to capital for hotel owners continues to be one of the Asian American Hotel Owners Association's points of emphasis when it comes to our legislative priorities. Anyone truly invested in the hospitality industry understands that just because the overall economic outlook has rebounded to levels seen before the downturn doesn’t mean that everything is back to normal across the board.
In fact, one of the biggest obstacles currently facing hoteliers stems from a policy change implemented years ago during the recent economic crisis. The Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 implemented changes that overhauled the lending behavior and supervision of financial institutions. Specifically, it prompted hotel banks to start classifying hotel loans as commercial real estate (CRE) instead of owner-occupied real estate.
Just to be clear, Congress and the Obama Administration still need to sort through a number of other issues with the Dodd-Frank Act over the next several months. This is because many view the intended solutions that this legislation was supposed to provide as inadequate or yet to be implemented. Decisions need to be made pertaining to the Volcker Rule, which is supposed to limit speculative trading by big banks, and the structure of a newly formed bureau designed to protect consumers. So obviously, the hospitality industry is not the only one with a complaint against the Dodd-Frank Act.
The difference between the two classifications is quite substantial and has closed several avenues for credit that used to be available to hoteliers. Banks are still shying away from CRE loans because they are riskier than owner-occupied loans. As a result, this has left hoteliers in a more challenging credit situation because very little lending options will be available when their CRE loans come due. Recent media reports have estimated that billions of dollars in CRE loans will come due over the next two years, so now is the time for us to find some solutions. The truth is that this reclassification issue is possibly standing in the way of allowing hoteliers and lenders to strike while the iron is hot. As the economy rebounds, now could be the time for the hospitality industry to make up lost ground from the downturn.
As we move forward, AAHOA leaders will meet with legislators and other decision makers on Capitol Hill such as the FDIC to stress the importance of once again allowing hotel loans and refinancing to be classified as owner-occupied loans. As with all of our advocacy efforts, AAHOA takes this role very seriously as we try to communicate our needs to legislators and government officials.
Decision makers need to understand that it is our members and small business owners throughout the country that create jobs and sustain local economies. Without the proper access to capital, whether through CRE reclassification or other means, local communities will suffer.