Hotel Finance Update by Howard L. Schweitzer, AVANT Capital Partners, Hospitality & Corporate Finance
As Hal Holbrook’s Deep Throat said to Robert Redford in "All the President’s Men": “just follow the money.”
It's still the same confusing game in the wonderful world of hotel finance. Now, don't get me wrong, we're not all shooting blanks when it comes to financing, refinancing or note purchases. But it's certainly not like the old days, either.
Financing options vary on the location, brand, condition and quality of the asset. But for starters, there are opportunities and that's a beginning.
On smaller deals (under $12 million) owned by individuals the best route is the SBA program and there has been a lot of activity in recent months. Offering blended rates in the 6.4% range with terms of up to 10 years, amortization between 20-25 years and as much as 90% leverage, you'd think the good days were back. But there are restrictions and make sure to find a lender that understands how to work with the government and has done it before to avoid delays and confusion. For small owners looking for maximum leverage, don't forget to look at the fee structure the government has established on SBA deals. The trade off for extreme leverage is the cost of doing business.
On slightly larger transactions (over $10 million) the CMBS desks are back in business. More selective than they were at the top of the last cycle, they have significant amounts of capital and want to play in the hospitality arena at lower leverage—think 60-70% LTV’s with higher leverage for better deals. The pricing for CMBS deals has fluctuated with the market and we have seen rates range from 4.00% to 6.00% depending upon market conditions, property type, leverage, location and asset quality.
Lastly, there are some banks that are starting to finance hospitality assets. I would steer clear of these guys because they typically do not have a formal hospitality department and tend to over react in bad times to this asset class.
The real opportunity, on a one off or portfolio basis, is the purchase of discounted notes from a bank that has decided, as many do, to sell at the bottom. I have heard opening round salvos from the banks at 50% of face value and that's before the hard negotiating begins.
The real players are the hotel REIT’s that are flush with cash, able to act efficiently and can buy in size. But for smaller players who understand their marketplace, discounted note purchases are plentiful and the economics can be compelling.
Avant Capital can help the individual buyer place an SBA deal, recapitalize or refinance their existing debt. On the advisory side of our business, we can raise equity or debt capital for opportunistic buyers. Please contact me at 716-408-0309 or email me at email@example.com to learn more.
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