If it’s out there, we’ll find it
Hotel financing can take a number of different forms depending on whether you are looking to refinance a current hotel loan, renovate your hotel building, acquire an existing hotel, or build a new hotel. If there’s a capital solution for your project, we’ll find it.
Hotel Funding Sources
Banks are one of our primary sources of brokered hotel loans from $5 million to $500 million and beyond. We use an extensive network of local and regional banks and national banks for loans to build a hotel (hotel construction loan financing), buy a hotel (hotel acquisition), refinance a hotel or renovate a hotel. Banks typically offer hotel financing with up to a 70% LTV ratio. Naturally, borrowers with high credit scores and a solid hotel development background will have the easiest access to bank loans, but Hospitality Funding has the ability to source hotel financing for borrowers with less than perfect credit histories.
Types of Hotel Financing
Banks can provide hotel construction financing through construction loans or bridge loans. Both are usually interest only with terms of 18 months to five years. Banks also offer revolving business lines of credit which are useful for reconstruction projects as well as FF&E expenditures.
Our other sources of hotel financing include:
Franchise Exclusive Lending Programs: Franchisors self-finance or work with lenders to extend hotel financing to franchisees. Strings are usually attached, such as a requirement for a comfort letter and adherence to Property Improvement Plan (PIP) mandates. PIPs require a franchisee to spend a certain amount of money over time to maintain the brand standards including FF&E and energy efficiency upgrades. Franchisors may offer hotel financing for PIPs, but this funding is also available through other sources, such as banks and mezzanine loans.
Private Lenders: Non-bank private sources of hotel financing include real estate investment companies, insurance companies, pensions, and a variety of commercial lenders. Private lenders are an important source for hotel financing when borrowers don’t meet bank underwriting standards.
CMBS Conduit Loans: These loans offer attractive terms for large loans on high-end properties. The LTV ratio is typically 75% for these non-recourse cmbs loans for hotels, fixed-rate loans with terms up to 10 years on a 30-year amortization.
In addition to Hospitality Funding’s vast network of bank financing, we have an array of non-bank, hotel financing sources starting at $3 million. We have the ability to provide hotel financing from $3 million to in excess of hundreds of millions, if required.
Considerations for Hotel Financing
Lenders formulate hotel loans as a combination of real estate and business loans consolidated into a single hospitality financing facility. The hotel loan uses the physical real estate (i.e. the hotel building) as pledged collateral. Accordingly, the loan must be approved in the same way as a traditional commercial real estate loan.
There is also a requirement to prove the validity of the hospitality business as a viable and sound financial proposition. Hotel financing can take a number of different forms depending on whether you are looking to refinance a current hotel loan, renovate your hotel building, acquire an already built hotel, or build a new hotel. The last option would require a hotel construction loan.
It is important to produce detailed, hotel project feasibility studies to verify your projections and proformas and to essentially “prove-up” your deal to the funding source. It is also important to understand that hotel construction loans are a different process from other forms of hotel financing. It’s crucial to have an experienced, knowledgeable and reliable hotel lender/partner who understands both your business and the wider market.
We look forward to discussing your next project.