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Hotel Loans come under the same underwriting guidelines as other commercial properties, except that there are usually additional service income that is part of the net operations.
To properly underwrite a hotel loan, the lender must first categorize the hotel based on product type, amenities and location. After further analysis of the financial statements the true profitability will become clear, allowing the underwriter to compare similar products to determine the proper pricing structure.
For example a franchise or flag property will underwrite more aggressively, than a non-flagged property. Aggressive underwriting translates into lower rates, fees, and longer terms.
HOTEL LOANS ARE A REFLECTION OF ALL THE INDIVIDUAL DEPARTMENTS TRUE PROFITABILITY.
Therefore, it all comes down to the consolidated operating statement of all the various departments of the hotel.
Each individual department will demonstrate their proftability by taking all revenue for that department, applying all allowable expenses; including cost of goods or services sold, yielding true net operating incxome for that department.
Market and Location
The property should be easily accessible and visible from the highway or major roadway.
Business-oriented hotels will provide ready access to downtown business areas,corporate parks and airports.
Vacation-oriented hotels will be highly visible from major roadways and be in close proximity to recreational amenities.
Property Condition and Characteristics
The property should will exhibit sufficient parking capacity to adequately accommodateits range of services and location.
A stable historical operation is critical. A property with a history four or less years should be reviewed carefully.
The property should have established an ongoing refurbishment program for both hard and soft goods.
Franchise affiliated hotels of Flagged Preoperties as they are known by are preferrable, with franchise agreements extending beyondthe term of the proposed loan.
Minimum acceptable occupancy (annualized for properties with seasonal fluctuations) is typically 60%; the average occupancy over the last 3 years should be at least 60%.
Full Service, Limited Service Hotels and Extended Stays
Caters primarily to business, government and vacation travelers
Maximum LOAN TO VALUE – 65% to 70%
Maximum Amortization – 20 to 25 years
Minimum DCR - 1.40x for full service and 1.45% for limited service
Minimum Occupancy – 60% over the past three year
s Maximum Occupancy when calculating Room Revenue – 75% Minimum Furniture, Fixtures and Equipment (FFandE) - the greater of actual or 5% of Total Revenue
Minimum Franchise Fee – the greater of actual or 5% of Total Revenue
Minimum Maintenance Fee – the greater of actual or 4.5% of Total Revenue
Capitalization Rate – use market-driven capitalization rate; typically 10% to 13%
Food and Beverage (FandB) contribution should be less than 40%
For A No-Obligation Professional Analysis of Hotel Loans click here.
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