Hotel developers trying to arrange financing for their projects have plenty of options available, but they might have to stretch their budgets to accommodate the demands of lenders.

During a session panel at this week's Midwest Lodging Investors Summit , panelists told attendees the conservative nature of lenders these days presents hurdles--but not blockades--for deals to get done.

"The good news is it's not as bad as you read," said Joe Epstein, president and founder of First American Realty Associates. "There is money available from the older, traditional sources. ... I'm a big believer that a good deal always gets done in any market."

Epstein said banks, savings-and-loan institutions, private lenders and regional and national insurance companies are among the sources for capital.

Tom Hazinski, managing director for HVS International's Chicago office, said it is clear that developers are seeking lending from regional banks rather than Wall Street financiers because of the turbulent banking industry environment.

Finding lenders willing to part with their cash isn't difficult, the panelists said.

It is best for developers to focus on lenders who specialize in the hotel industry because those are the sources that best understand the business model.

"Ninety percent of all to-be-built hotels are financed within a 50-mile radius of where the hotel is to be built," Epstein said. The important thing is to find a lending institution willing to take the lead, and the majority of the time three or four other banks will step in to complete the lending requirements.

Of course, proving to the banker that you are a legitimate hotel-industry participant is essential.

The companies able to get deals done are the ones that have a track record and have the proper documentation for the lender, Hazinski said.

Epstein said bankers want to make sure developers have deep pockets to get them through tough economic situations.

"Not only is cash king, but liquidity is king," Epstein said. "The thing they understand more than anything is cash. It has never, never, never been more important."

Epstein said that if you don't have a feasibility study, don't know the brand the property will be or don't know the management company that will operate the hotel, don't bother visiting the bank.

"Now is the time to be a Boy Scout," he said. "Be prepared."

Other things to be aware of include the move away from non-recourse loans, most banks requiring personal guaranties and plenty of documentation.

"It's categorically now a lender's market," Epstein said. "You do what they want you to do."

"Lenders today are no willing to stick their necks out," Hazinski said.

Epstein said debt-service coverage rations are in the 1.35 to 1.40 range with most lenders nationally, while the panelists said interest rates range from the low 6-percent range to 8 percent.

But the challenge is getting fixed rates.

"Few lenders want to fix for 10 years. Most want to fix for five (years)," Epstein said.

Cap rates also are moving targets. Hazinski said the need to reassess cap rates regularly has recently grown. He said they range from 7.5 percent for full-service premium markets to 12 percent for limited-service products in weaker markets.

Loan-to-value ratios are also being squeezed. The panelists said the prevailing LTV is 65 percent, but the re-mergence of mezzanine financing is doing a good job of bridging the gap. Mezz financing could take a current project's LTV as high as 85 percent, according to Heard.

"Mezz was on the sidelines for a long time," Heard said. "Now, they're back. It's a little expensive, but it certainly is available."

Epstein cautioned that most borrowers need the primary lender's approval to bring mezzanine financing into a deal.

While the lending environment is tougher now than it was 18 months ago, it isn't the end of the world, the panelists said. The best thing that the hotel industry has going for it is that the performance fundamentals haven't sank into the abyss.

"The good thing about the hotel business is it's not broken," Epstein said. "The business itself is not totally overbuilt. As long as it is not overbuilt, I truly believe that there are good deals out there that will be financed. It will be a year or two before CMBS (commercial mortgage-backed securities) come back. They were doing 40 percent of the lending when they were here. That's an unbelievable loss."