How to underwrite a hotel loans

Is the hotel ADA compliant? The lender has to dig and investigate issues. Experienced hotel lenders and advisors will have a good idea, after the analysis is complete, if the operator, the market, the owner and the property are compatible.

Does the hotel owner own other hotels, bars or restaurants? The wrong decision means the hotel may have to rebranded, which is exceptionally costly, particularly if the hotel owner signs a long-term, no-cut contract which the lender is required to honor through an SNDA.

A cash flow sweep structure can solve this problem. If you would like a refresher as to why hotel lending is different from other kinds of real estate lending, you may want to refer to see, Why hotel lending is different and 8 pitfalls of hotel lending and how to avoid them.

Has the hotel sponsors received loans from the hotel operator, vendors or third parties, or taken other actions, to make hotel operating costs appear less than they actually are?

The analysis can also reveal serious discrepancies or festering problems that will cause a lender to reject the loan. The sweep is a temporary mechanism, with all swept cash returned to the borrower once the franchise agreement is renewed and there are sufficient funds available to pay for an associated PIP.

Close Me United States: This poses a problem when seeking five or ten-year permanent financing. A thorough analysis will let a lender know what potential weaknesses exist, and provide assurances that the lender has adequate protections and solutions in the event of default.

How frequently are reports provided? For full-service hotels, the minimum is approximately Below are the most common adjustments: This minimizes or eliminates the discount to market value a seller would otherwise have to accept, particularly in a declining interest rate environment.

Whether you are in the market for a simple refinance or acquisition financing, a discounted-payoff DPO financing or a PIP-induced recapitalization, the same rules apply. Hotel lending is far more involved. Another is pulled and the fabric begins to unravel, revealing weaknesses that lead to further questions.

Lower adjustments can be made for new or recently renovated hotels. In a rising interest rate environment, a loan assumption will add value to an encumbered sale by allowing a new buyer to take advantage of a lower than market interest rate for the remainder of the existing loan term.

Almost every financing we have worked on post-financial crisis included one or more of these stories. Knowing what questions to ask at each juncture comes from specific hotel lending experience. There are certain markets, particularly those with high barriers-to-entry New York Citywhere this rule may not apply or carry a higher threshold.

This series is designed to provide the essentials: A borrower can think of this structure as having a loan with a shorter term and built-in, prepaid extension options. Is the hotel subject or vulnerable to an ADA investigation or lawsuit? The hotel lender needs to look beyond the reports it is receiving, and look at the facts and circumstances carefully - then require that the reports be tailored accordingly.

Please see the links at the end of this article for other articles in the "What every hotel lender needs to know" series. The due diligence required in hotel lending is far more intensive than for any other kind of real estate lending and requires far more expertise.

Will the lender have sufficient reserves as part of its collateral? More expertise, more time, more resources. September 16, By Brian Holstein Do you have upcoming hotel financing needs? What is the competition in this market segment? Has the hotel owner deferred payments to vendors?

Is the hotel lender looking beyond the reports? The following list identifies the top 4 hotel financing obstacles and advice on how to approach them: In practice, there are hundreds of questions a hotel lender, its consultants and lawyers will ask when analyzing a prospective hotel loan.

No short cuts to due diligence and no replacement for hotel expertise While this series of articles on "What every hotel lender needs to know" does not cover every issue lenders have to consider when making hotel loans, it covers some of the most basic areas of concern.

Lenders will correspondingly drop variable expenses associated with the lower underwritten occupancy to help offset the downward adjustment. Lenders will not adjust ADR upward to offset a downward occupancy adjustment, so be prepared to do that yourself.

Do the reports satisfy specific accounting, recordkeeping, and computerization requirements? Below are the most effective ways to mitigate prepayment penalties:May 05,  · How to Underwrite Loans.

When attempting to underwrite loans, the key to success is gathering the right information. Loan underwriters must use data from a myriad of sources, including bank statements, credit reporting agencies, utility 89%(27).

Acquiring hotel loans can be as cyclical as the recurrent nature of a hotel itself. Real estate markets, the economy and tourism can affect the hotel industry and lenders are sensitive to many external but related factors when they issue credit for hotels.

Construction lenders underwrite commercial construction loans using five ratios: (1) the Loan-to-Cost Ratio; (2) the Loan-to-Value Ratio; (3) the Debt Service Coverage Ratio; (4) the Profit Ratio; and (5) the Net-Worth-to-Loan-Size Ratio.

If You Lend On Hotels, Read This. C&I loans to hotel companies tend to perform better than loans to single properties due to the power of diversification and the fact that many hotel companies derive their income from management fees instead of property level performance.

When it comes to lending to hotel companies the average. Capital Sources and Financing» INTRODUCTION The hotel industry has recovered almost completely from the time in the early s when obtaining any type of financing was difficult.

With the renewed success of the hotel industry, lenders are more loans made for financing permanent improvements, whether secured or not.

Oct 10,  · What every hotel lender needs to know about hotel due diligence. By Guy Maisnik | Hotel Lending Lawyer, JMBM Global Hospitality Group® Why hotel loans are different than other real estate loans -- A quick review. Underwriting a hotel loan is different than underwriting a real estate loan.

Hotel lending is far more involved.

How to underwrite a hotel loans
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