Hotels & Hospitality

Hotels are commercial real estate and an operating business at the same time, and that dual nature is what makes them difficult to finance. There are no long leases underpinning the income — a hotel re-lets every room every night, and revenue can move sharply with the season, the local economy and the supply that opened down the road last year.

Lenders know this, and hospitality is consequently the asset class where lender appetite swings hardest. Programs that are aggressive one quarter withdraw the next. Much of the value we add here is simply knowing who is genuinely lending on hotels right now.

What we finance

• Flagged hotels operating under a national franchise agreement
• Independent and boutique properties
• Build-to-suit for franchise development — see development and construction
• Acquisition of existing hotels, stabilised or value-add
• Repositioning and renovation, including property improvement plan work
• Refinance of maturing hotel debt

What underwriting turns on

Operating history. Lenders want several years of statements, and they will look at the trend rather than the best year. A property recovering from a weak period is financeable; one with no history at all is a construction loan, not an acquisition loan.

RevPAR against the competitive set. Revenue per available room compared with directly comparable local hotels tells a lender whether the property is winning or losing share. Underperformance against the set can be an opportunity — it is the basis of most repositioning deals — but you will need a credible plan for closing the gap.

The flag. A franchise agreement brings a reservation system, brand standards and a booking pipeline, which supports financing. It also brings obligations: property improvement plans are mandatory, expensive, and frequently triggered by a change of ownership. Budget for the PIP at acquisition, because the lender certainly will.

The management company. As with senior housing, the operator is underwritten alongside the building. Experienced third-party management strengthens a file considerably.

Structures that fit hospitality

Value-add and repositioning deals rarely suit conventional permanent debt at acquisition, because the income does not yet support it. Bridge financing through the renovation and stabilisation period, with permanent debt arranged once performance is proven, is the usual route — and planning both ends at the outset is what keeps it from becoming expensive.