There are many lenders that offer competitive rate for hospitality financing. Below is a list of the lenders:
- Credit Union
- Insurance companies
- pension funds
- REIT Trust
- Commercial Mortgage Backed Securities (CMBS or Conduits)
- Private lenders
Not all lenders will consider all properties for example some lenders will lend on all primary hospitality property types. For example, Motels with exterior corridors, Limited Service, Full Service Luxury and Full Service Luxury with Convention Centers. Some lenders will lend in small roadside communities while other lenders would restrict their loans to major and secondary markets. Affiliation with a Flag is also important to most institutional lenders.
Some lenders will focus mainly on higher end flagged Luxury properties such as Marriott, Hyatt, Hilton, Radisson, InterContinental, Holiday Inn, Omni, Full Service Wyndham and Four Seasons. The lenders that would be eager to lend on these generally can offer long term fixed rates from 5, 7, 10, and 15-years with amortization schedules of 25 and 30-years. Many times these are under typical non-recourse loan terms. These lenders generally will lend up to 65% of the value of the property. You might have the ability to obtain mezzanine funds to increase the loan to value as high as 70% on a case by case basis. The rates posted on our web site (www.caffreyloans.com) carry the most recent rates available for full service hotels in major and secondary markets.
Lenders that offer the best interest rates for Hotels are Insurance Companies, Pension Funds, and REIT. These lenders are also the most conservative.
Some CMBS lenders will consider Budget Hotels on non-recourse loans that carry flags such as: Best Western, Choice Hotels (Comfort Suites, Clarion Inn, Mainstay, Quality Inn, Comfort Inn and Sleep Inn), Drury Plaza Inn and Suites and La Quinta. CMBS offer higher leverage than most non-recourse lenders.
If personal recourse is not an issue banks and credit unions can offer loans with the support of SBA up to 85% of the value of the property. These lenders will consider budget flagged hotels in small markets. Examples of these budget flagged properties are;
- Super 8,
- Motel 6,
- Howard Johnson,
- Red Roof Inn,
- Red Lion,
- Extended Stay America,
- Pear Tree Inn
Banks and Credit Unions generally do not offer long term fixed rates due to their source of funds (deposits), they also often reduce the amortization to 20-years on full leverage loans.
Risk and Cap Rates:
There is a perception of risk embedded in the market that the lower down the spectrum of services and level of luxury the higher the risk. The 2018 Cap Rate Summary prepared by CBRE Research shows the following Cap Rates: [Click on the following link to see sample Cap Rates.]
If you viewed the Hotel Cap Rates Link you could see the lower down the service and luxury level the higher the cap rate. For example Chicago cap rates for a Luxury Property in the Central Business District (“CBD”) sees Cap Rates between 7.00% and 7.50%. For an Economy property in the same CBD you see Cap Rates widen to a range between 9.00% and 11.00%.
As a general rule lenders with the lowest interest rates, non-recourse loan terms focus on the Luxury and Full Service properties. These lenders also prefer nearly new properties if they fall in the Select Class.
In conclusion, if your property has a unique qualities. Such as a premier location, or other unique qualities with a proven performance history lenders with the best rates and terms would be interested in the property even if the property carries no flag and is operating as a boutique property.
Which is the best loan product for you? Please call Mike Caffrey to discuss the loan options available for your property. We would welcome the opportunity to provide you with a free loan quote and proposal. Mike Caffrey (913) 402-7077 or Mike@CaffreyLoans.com