when others are avoiding it.

The Chicago-based finance company last week said it had embarked on a new program to finance hotel acquisitions and turnaround projects. It expects to close $300 million of such loans next year -- equal to the amount of hotel loans it originated in the last three years.

In 1997 and 1998, when many lenders jumped into the hotel sector, "we backed out," said Michael Rowan, managing director of specialty businesses at Heller. "Now that everybody's backed out, we're going in."

Ever since the global financial market meltdown of late 1998, money has been much harder to come by for hotels. After last year's crisis subsided, the commercial mortgage-backed bond market, a key source of long-term financing, "opened up, but not for hospitality," said Roger S. Cline, director of hospitality consulting services at Arthur Andersen LLP.

Hotels are considered one of the riskiest types of real estate to lend against. Whereas an office building might have tenants with leases as long as 20 years, hotel rooms by their nature turn over every few days. And a foreclosed hotel requires more active management than a property with long-term leases.

In its new push into hospitality lending, Heller will make loans of $5 million to $20 million for "middle market" hotels, meaning brands such as Holiday Inn, Marriott Courtyard, Embassy Suites, and Homewood Suites, around the country. It will hold the loans in its portfolio.

Mr. Rowan said Heller will limit its risk through selectivity. For one thing, it will only finance existing properties, not new construction.

Perhaps most important, Heller is also staying away from limited-service hotels. Observers said that is a wise policy, given rampant overbuilding of such hotels in recent years.

"That's where the bomb is going to blow up," said Morris Lasky, chief executive officer of Lodging Unlimited, which has dual headquarters in Chicago and West Chester, Pa. Already, Mr. Lasky said, his consulting firm has taken over management of an average of one distressed limited-service hotel per month this year.

Even middle-market hotels can be affected by the glut of limited-service hotels if they are in the same areas, experts said. "If a hotel gets into trouble and starts cutting rates, it will impact every other hotel in the market," Mr. Lasky said.

Mr. Rowan said Heller is mindful of that issue. "If there's too much of a risk because of an overabundance of rooms in any sector, we could have a negative decision on the deal," he said.

Mr. Cline at Arthur Andersen said that in the hotel business, marketing and customer satisfaction are just as important as location. "Bankers that ignore this reality and get tangled up on the physical asset side of things exclusively clearly are asking for trouble," he said.

That point is not lost on Heller. The lender will focus on "brand first, then market," Mr. Rowan said. When evaluating loan requests, it will look at a hotel chain's reservation system and customer retention programs.

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