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USDA July 24th Recovery Act Funds Notice Disqualifies Hotels with Pools

August 5, 2009, Updated August 26, 2009

On July 24th, USDA issued a Notice pursuant to the recent passing of the American Recovery and Reinvestment Act of 2009 indicating additional funds allocated to the Agency for use under the B&I loan program. The provisions of this Notice do not apply to the loans funded under the Omnibus Act of 2009. (see the Notice - Vol. 74 No. 141 July 24, 2009)

The highlights of the Notice are:

The Act provides $126,100,000 additional funds through September 30, 2010 for B&I loans
The guarantee fee for loans funded through this program is 1% instead of the standard 2%
Hotels/Motels with pools are disqualified from this program
Applications scoring at least 55 using B&I criteria are eligible for 90% guarantee

The guarantee has three benefits for the lenders:

The lender can sell the 90% guaranteed portion to the secondary market for a premium. With regained liquidity the lender can process new loans
The lender is not required to hold reserves for the guaranteed portion, hence additional capital doesn't get tied up for a loan
Even if the loan is kept on the books and not sold in the secondary market, the lender has reduced risk exposure when 90% of the hotel loan is guaranteed.

Hotels with pools then can only be financed through the Omnibus Bill at standard terms with 80% guarantee yet the lenders will find it unattractive to finance hotels at 80% while they can receive 90% guarantee on other types of assets. On the other hand, pools are almost a standard feature for the hotels and the franchisors now may require a pool as a necessary feature. With the USDA financing as the last resort strategy for financing hotels, the disqualification will blight this weak industry even further.

The following are the actions we have taken so far against this decision:

August 3, 2009:
we are asking the USDA to reconsider its position and have written a letter to the following USDA staff: (see a copy of the letter to the USDA) - No response has been received and no calls we placed to communicate with them directly have been answered as of today
Dallas Tonsager - Under Secretary of Rural Development
Judith Canales - B&I Program Administrator (cc to Pandor Hadji the Acting Deputy Administrator and Curtis Wiley the Chief of Staff to RBS Administrator)
August 10, 2009:
We have set up a petition to the Department of Agriculture

August 25, 2009:
We have forwarded the Petition information to the Department of Agriculture Secretary, Tom Vilsack, and to the members previously on the email mentioned above. No response has been offered as of today.

August 26, 2009:
We had requested AAHOA for its support. We are so proud to announce the following Member News Advisory was just issued by AAHOA:

August 26, 2009:
We sent a letter along with the petition information to every member of the Senate Agricultural Committee and to the House Agricultural Committee.
August 26, 2009:
We also forwarded the letters to the Agricultural Committee to CNN general desk, to CNBC, and to Ali Velshi from CNN.
August 27, 2009:
We have forwarded the AAHOA Member Advisory to the Department of Agriculture.
August 27, 2009:
The AAHOA Member Advisory was forwarded to National Real Estate www.nreionline.com Editor, to the Hotel News Now www.hotelnewsnow.com, Hotel Business www.hotelbusiness.com/hb/main.asp and other hotel business magazines.
September 14, 2009: American Hotel and Lodging Association sends writes to Mr. Vilsak, Secretary of Agriculture, and disputes the position of the Department and its detrimental impact on the Hospitality Industry - More information may be obtained by contacting Shawn McBurney, the Senior Vice President of Governmental Affairs at the American Hotel and Lodging Association at (202) 289-3123
September 23, 2009:
A copy of the letter addressed to the members of the Agriculture subcommittee was directly sent to Ted Serafini of the office of the Senator Lincoln, the new Chair of this committee. No response has been received as of today. Ted Serafini can be reached at (202) 224-4843.
October 1, 2009:
Mark Heschmeyer, the editor of costar places the press release by Scientific Capital on the Watch List section of the October issue.
October 15, 2009:
We contact Todd Batta of the Agriculture Senate Committee where Todd has opted to look into this matter by examining the language of the original ARRA bill and the translation of that language in the USDA Notice. Todd can be reached at at 202 224 2035.
November 6, 2009:
AAHOA supports Scientific Capital's position on this matter and issues a formal statement of position to USDA. See the official notice.
November 9, 2009:
With Todd leaving the Senate Ag Committee, we now have RL Condra helping us raise this issue to Senate Committee members.

Please contact us at (949) 477 5000 or email Ramin Mostaan at ramin@scicap.com to offer your advice and assistance.