HOTEL AND MOTEL LOANS

Conditions in the hotel and motel lending market have been good for the last several years, with strong profitability in the industry, low interest rates, and generally good credit availability.  Despite the good availability of credit for hotel and motel transactions, our recent experience shows that the most likely source of financing for your project will be a specialized lender outside of your local market.

A long-term holdover of the Great Recession is that local, regional, and national banks have limited conventional lending capacity for most types of commercial real estate.  This includes hotels and motels.  In most geographic markets your local bank branches are not accepting applications for new conventional (i.e. not government-guaranteed) hotel and motel loans.  If they are accepting applications, they are probably limited to working with hotel and motel operators who have an existing borrowing relationship with that bank.

SBA 7(A) LOANS FOR HOTELS AND MOTELS

Fortunately, there are specialized lenders who have a good appetite for hotel and motel lending outside of conventional lending markets.  For projects below $5.0 million, SBA 7(a) financing continues to dominate the market.  The SBA 7(a) program reduces the lender's risk of loss through a partial guaranty by the U.S. government.  Equally important, this government guaranty allows the lender to fund a portion of the loan through investors in a secondary market instead of depending on their local deposit customers.

Here are some typical terms of SBA 7(a) loans for hotels and motels:

Loan Amount:  $500,000 to $5.0 million

Loan Purpose:  Purchases, refinances to reduce interest rates or monthly payment, refinances with new funds for renovations, new construction.

Collateral:  First lien position on real estate and FF&E.

Interest Rate:  Based on the Wall Street Journal Prime Rate, adjustable quarterly if the Prime Rate changes up or down.

Repayment Terms:  Repayable over 25 years, no balloon payment (these terms are on of the main advantages of SBA 7(a) financing.

Loan-to-Value:  Up to 80% of appraised value.  Lenders will look for a down payment/cash injection equal to 20% of the project cost.  Your down payment can potentially be reduced to 10% of the project costs if the seller of the property is willing to carry a second lien note for the other 10%.  The seller note has to be structured properly to meet SBA requirements (give us a call for the details).

Franchise:  Most lenders preferred franchised properties, but we also have lending sources for independent hotels and motels.

Construction Type:  Some lenders prefer interior-corridor properties, but we have good lending sources for exterior-corridor properties as well.

Loan Availability:  Good.  Most scenarios will fit the criteria of at least a few potential lending sources.

SBA 504 LOANS FOR HOTELS AND MOTELS

For hotel projects needing financing over $5.0 million, the SBA 504 program is a potential option.  It is less widely-available than the SBA 7(a) program, but offers some attractive terms:

Loan Amount:  Up to $12.0 million

Loan Purpose:  Purchases, refinances to reduce interest rates or monthly payment, refinances with new funds for renovations, new construction.

Loan-to-Value:  80% - 85% of appraised value for hotels and motels.  Lenders will look for a down payment/cash injection equal to 20% of the project cost.  Your down payment can potentially be reduced to 10% of the project costs if the seller of the property is willing to carry a second lien note for the other 10%.  The seller note has to be structured properly to meet SBA requirements (give us a call for the details).

Loan Structure:  A conventional lender provides a first mortgage loan up to a 50% loan-to-value, and the SBA funds a second mortgage loan for another 30% - 35% of the project.

Collateral:  First and second lien position on real estate and FF&E.

Interest Rate:  The first mortgage lenders offer fixed and variable interest rates.  The SBA-funded portion

Repayment Terms:  Repayable over 25 years, no balloon payment (these terms are on of the main advantages of SBA 7(a) financing.

Franchise:  Most lenders prefer franchised properties, but we also have lending sources for independent hotels and motels.

Construction Type:  Lender generally prefer interior-corridor properties.

Loan Availability:  Limited.  Few lenders participate in this market, so some scenarios may not have an available SBA 504 lending source.

BRIDGE LOANS FOR HOTEL AND MOTELS
Bridge loans are available from private lenders for hotel purchase transactions.  It is a more-expensive form of temporary financing, but it sometimes makes sense for opportunities with strong potential such as:  (1) a hotel purchase at a discounted price which requires a quick closing (2 - 3 weeks), or (2) a discounted purchase of an under-performing hotel in need of a renovation or operational turn-around.
Here are typical bridge loan terms:

Loan Amount:  $1.0 million and up

Loan Purpose:  Purchases, purchase/refinances with new funds for renovations.

Loan-to-Value:  65% - 70% of lesser of appraised value or cost.  

Collateral:  First lien position on real estate and FF&E.

Interest Rate:  Fixed interest rate in the range of 9% - 12%.

Repayment Terms:  Interest-only payable monthly, balloon payment in 2 - 3 years.

Franchise:  Most lenders preferred franchised properties.

Construction Type:  Lenders generally prefer interior-corridor properties.

Loan Availability:  Good.  These lenders are primarily focused on collateral value, so financing is generally available in situations where the loan-to-appraised value and loan-to-cost ratios are below 65% - 70%.

© 2020 by Windward Financial, LLC, All Rights Reserved, Any offer or inducement in this web site is void where prohibited by State or Federal law.