Western Alliance boosted lodging loan exposure in Q1 while other banks retreated

Western Alliance Bancorp. reported a significant increase in its exposure to the lodging sector in the first quarter.

Hotel franchise finance loans at Western Alliance were 14.0% higher compared to the end of 2022 and comprised 8.1% of the bank's gross loans as of March 31. That was the largest sequential increase among two dozen US banks that disclosed more than $125 million in lodging loans in the first quarter.

The move came as many lenders reduced their lodging loan exposure, reflecting a growing uneasiness toward commercial real estate lending amid capital markets uncertainty.

Of 24 select banks that reported greater than $125 million in outstanding lodging loans as of the quarter's end, 14 posted quarter-over-quarter decreases, according to an S&P Global Market Intelligence analysis.

Cathay General Bancorp. posted the largest quarter-over-quarter percentage decrease at 10.6%. Associated Banc-Corp. came in second with a 9.0% decline.

Nine banks reported larger exposures, including Heritage Financial Corp., which notched a 10.9% gain.

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Lodging companies reported revenue, occupancy and rate metrics in the first quarter that were significantly better since the lowest points of the COVID-19 pandemic when many corporations sharply curtailed business travel, trade groups canceled conferences and leisure travelers postponed trips.

At Marriott International Inc., the world's largest hotel brand company, global revenue per available room was up 34% year over year in the first quarter, while worldwide occupancy stood at 65%, up 11 percentage points year over year.

But Marriott CFO Leeny Oberg said in an earnings conference call that rising interest rates have made the financing environment in the US and Europe "challenging" for some time.

"Another element of uncertainty has now been added as some banks wait for more clarity around capital requirements and perhaps additional regulations," the executive said.

Oberg said the company expects the tightening in hotel financing to be short term.

In Hilton Worldwide Holdings Inc.'s first-quarter earnings call, President and CEO Christopher Nassetta said construction of limited-service hotels will be slowed by a pullback from regional and local banks.

Some owners of Hilton properties are having trouble finding financing, Nassetta said.

"They're talking to their banks and their banks are saying, 'Hey, we're going to be there for you. Just give me like 90 days. Let me see how this all plays out,'" the CEO said.