For hotel property financing from a commercial lender, the key criteria for lending is going to start with cash flow, followed closely by vacancy rates and the seasonal use patterns that impact the cash flow of the hotel operation.
Other key lender requirements can revolve around the type of hotel and category. For instance is the hotel property under the flag of a national or international hotel chain? Is the hotel classified as a three, four, or five star hotel? Is it linked into a national reservation system and so on.
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Each type of lender will have their own lending/funding criteria related to hotel financing, making it critical to be applying to a funder that is interested in your particular hotel profile.
Lender Categories For Hotel Commercial Mortgage Financing
When it comes to hotel property financing, there are basically three lender categories that can be looked at.
The first category, or lowest rate category would be a bank, credit union, or other form of institutional lender which could include life insurance companies, trust companies, pension plans, and so on.
While category #1 will provide the best rates on the market, their financing requirements will also be stringent and difficult to qualify for at times.
The second lender category for hotel commercial mortgages is would be more of a ?B? lending category where the financing target of the lenders are hotels that cannot quite qualify with a bank or institutional lender.
This group would include quasi institutional lenders such as investment bankers, hedge funds, and other forms of investment funds.
The rates will be slightly higher, but lending requirements also not as rigid as you will find in the lower rate lender category.
The third category would primarily include private mortgage lenders which could range from an individual investor to a mortgage syndicate to a mortgage investment corporation.
Once again, the rate is going to be higher than what you would get from a bank or institutional lender, but the qualifying criteria will also be easier to achieve.
Private commercial mortgage financing can be an excellent source of short term funding for a hotel property.
Hotel Financing Application Process
The application process for securing a commercial mortgage on a hotel property is going to start with a completion of a standard application that clearly outlines the ownership of the hotel as well as the guarantors for the proposed mortgage.
Most commercial mortgage lenders are going to want to see at least three years of accountant prepared financial statements as well as three years of operational data to clearly understand the room and service pricing, vacancy rates, and so on. The property will require an AACI appraisal as well as an environmental audit. Financial projections will be required for the next three to five year period with all assumptions clearly outlined.
If the hotel has a marketing plan, this would also be useful for assessing the business viability of a funding application.
The resumes of the owners and managers will be required to better understand the experience that is available to the business.
There can be several other lender requirements in a hotel financing application, but the above items represent what would be required in any application.
Timelines For Completion Of A Hotel Property Financing Application
The average time of completion from the point of application to funding typically ranges in the 30 to 60 day range. The process timeline can extend even further depending on the amount of time it takes to receive all the third party requested documentation such as financial statements and appraisals.
Depending on the area and time of year, third party experts such as accountants, appraisers, and consultants may have a back log of work which can take them longer to complete your requirements.
This is another reason why the process for hotel financing should be started as soon as possible so there is plenty of time to fully explore all the relevant commercial mortgage financing options available to you.
Best Approach For Securing Hotel Property Financing
Compared to other forms of commercial property financing, a hotel finance solution is one of the more complete to arrange due to the fact that the lender or funder needs to assess both the hotel property and the business operating within it.
Commercial mortgages for tenanted properties can be much more straight forward to assess in terms of the cash flow and debt servicing requirements now and in the future.
From a lender point of view, it can also be hard at times to identify which lenders are funding hotel applications and what their lending/funding requirements are.
Commercial mortgage lenders typically are in and out of this market, depending on the strength of the economy and the strength or weighting of their portfolio.
As a result, its easy to waste valuable time working through an application with a lender that has a very low probability of actually funding your deal at the point in time you require funding.
So from both a application complexity and positioning point of view, and lender market understanding, it can make a great deal of sense to work with a commercial mortgage broker who has a good understanding of the market place an is experienced in putting an effective application package together for any targeted commercial lenders.
If you have a hotel property financing requirement for acquisition, construction, or commercial mortgage refinancing, I suggest that you give me a call so we can go over your situation in detail and review commercial mortgage financing options that available to you.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
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Related posts:
- Ontario Hotel Financing
- Self Storage Property Financing
- Commercial Property Financing Challenges
- Short Term Commercial Property Financing Considerations
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