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Hotel Loans for buying a Hotel
or refinancing a Hotel 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 financing 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 the Hospitality
Loan.
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 AND HOTEL
FINANCING ARE A REFLECTION OF
ALL THE INDIVIDUAL DEPARTMENTS
TRUE PROFITABILITY.
Therefore the financing of hotels
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
income 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 accommodate its range
of services and location.
A stable historical operation
is critical. A property with a
history four or less years should
be reviewed carefully before buying
a hotel.
The property should have established
an ongoing refurbishment program
for both hard and soft goods.
Franchise affiliated hotels or
Flagged Properties as they are
known by are preferable, with
franchise agreements extending
beyond the 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
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
Loan Analysis of Hotel Loans
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