Hotel loan questions

Board Topic: hotel loans
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hotel loans

Posted by: Ray Jun 29 2004, 08:53 PM
When buying a hotel(s) are there any loans that don't have to be 60 or 70% loan to value. I have the ability to put down a substantial down payment , but with the current loan to value ratio requirements it is not possible. I have extensive hotel management experience, the market I am in is and has been a very strong hotel market for many years, and the hotels I am interested in are in prime locations. I am also a realtor and all properties include the real estate as well as additional lots and acreage on 2 of the hotels. It is basically a turn key transaction. I really hope I don't miss out on this opportunity. Thank you for your assistance.

Sincerely,

Ray

Posted by: Randy Groover Jun 30 2004, 07:25 PM
Ray,

Depending on the size of the loan, I know of some options. For smaller properties (even those that are unflagged) loans in excess of 75% LTV are possible. A 75% LTV is possible on larger properties or YOUR equity contribution can be reduced by combining your equity with the equity from other investors.

As always, getting a loan is a subjective process where your qualifications and resources may or may not match up well with a given lender's requirements so there are no hard and fast rules. However, as a general principle, there are ways to minimize the amount of equity that you put into a transaction.

Randy


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Posted by: loanuniverse Jun 30 2004, 08:46 PM
Ray:

I think is a matter of finding out a lender that is willing to do it. They are out there, but are rare. Trying to find a mainstream lender that goes over 75% is going to be difficult. I would guess that your best bet for this kind of loan-to-value would be a small thrift {savings & loan} or a very small community commercial bank.

The reason why I say that going with a small lender is the best way is due to the possible lack of quality credit risk assessment of the small lenders. You might get lucky and find one that does not have lending to hotels prohibited in its internal credit policy, you might also find one that can go up to 80%. I am not certain about the regulatory loan to values for thrifts or commercial banks, but usually those are a bit higher than internal ones so 80% sounds feasible.

The second option would be going with a broker. Personally, I would avoid using one as you are probably going to have to pay a fee, but then again any good broker should not get his fee until the deal closes. The broker might also be able to put you into contact with non-bank lenders, which of course are more flexible when it comes to credit, but are also usually more expensive in terms of pricing. A very good one {also rare} will have enough contacts to get you pricing and structure better than you can get yourself by using his contacts.

The important thing to do is provide as much financial and market information as possible to make it easy for the lender to feel some level of comfort with the loan. You can even get some of it for free. For example, some cities have visitor bureaus that provide some research that the bank can use for the analysis. Here is one resource I have used in the past: http://www.orlandoinfo.com/b2b/research/

Another thing to remember is that the loan will be underwritten with cash flow from operations. I know you made a point to mention that the hotels include real estate, but a traditional lender uses collateral as a secondary source of repayment.

Good luck

Posted by: The Fox Jul 1 2004, 01:14 PM
Just a couple of thoughts.

It should be possible to do a 75% LTV if you can get someone who's able to do hotels. We've done 75% before, but we've also turned down plenty with better collateral.

As LU said, the cash flow is what the lender will probably be most interested in. Does the business cash flow now? Will it cash flow with the debt you are looking at to purchase it? I'm assuming you've looked extensively at the financials already - if not do that now.

You've talked about the extra land around the hotel(s). Are you planning to develop this? Or sell it? Will you need more money to take advantage of this? (The speculative nature of this, on top of the hotel business may be a double turn-off for lenders.) The lender will probably want gains from this development to pay down the debt.

Are you looking at this primarily as the opportunity to own/run this hotel, or to piece out the land from the hotel and make money from separating the pieces?

Also supporting LU's statement, the more information you can provide a lender, the more comfortable they can get with you and the deal. 3 yrs fincials, an appraisal supporting the purchase price, a detailed resume, a clear plan.

Lenders (and analysts) like that. wink.gif

Good luck!

Posted by: loanuniverse Jul 1 2004, 03:02 PM
Just a little note regarding Fox's comments... The appraisal needs to be ordered by the financial institution in order to be considered an independent valuation.

{At least for regulated financial institutions}

Posted by: Dave Jul 1 2004, 10:47 PM
Ray- We can do hotel/apt. loans up to 80% LTV in all 50 states. Get your financials in order as The Fox mentioned and email me at: XXX@XXX.XXX., with your phone number.
If you are considering splitting off the acreage and/or developing it seperately, we might be able to help you finance that also with another type of loan. Check with the county or city to see if you can split the lot, and if it can be done "when" escrow closes (with the seller receiving his same net) you have more options.

Dave

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Posted by: The Fox Jul 2 2004, 08:41 AM
QUOTE (loanuniverse @ Jul 1 2004, 03:02 PM)
Just a little note regarding Fox's comments... The appraisal needs to be ordered by the financial institution in order to be considered an independent valuation.

{At least for regulated financial institutions}

That's right. I guess I was thinking that there might have been one done recently, but that's less likely with a commercial property like that than, say, rental properties.

Posted by: Rayshope Jul 2 2004, 11:45 PM
Dave, I wasn't able to get your email on the post, due to the rules... I believe you can email through this site.

Posted by: Rayshope Jul 2 2004, 11:57 PM
If anyone is interested in contacting me in reference to this project, please send me an email. I have updated my email address today, it wasn't correct in my profile.
email
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