Hotel Loans

Submit your loan application for a Free Quote

Apply Now

Hotel Loans

Two type of lenders for Hotel Loans: 1) Portfolio and 2) Commercial Mortgage Backed Securities (CMBS) lenders.

For the most part a portfolio lender holds the loan on their books.  Banks, Credit Unions are examples of portfolio lenders.  It might be the portfolio lender will participate part of a loan with another bank or credit union.  It is also possible they sale a portion of the loan but most often retain servicing when financing with the Small Business Administration (SBA).

 

SBA 7a and 504 Loan Programs:

Portfolio lenders can take advantage of the SBA and provide recourse loans up to 85% of the property value.  SBA guaranty is limited to $5 million (higher if energy efficiency requirements are met).   The 7a is when the lender closes the hotel loan and the SBA provides a limited guaranty to the originating lender.  Often this SBA guaranty is 75% of the hotel loan amount, with the SBA guaranty limited not to exceed $5 million.

The SBA 504 program:

You have two lenders in a SBA 504 loan.  The first mortgage lender (e.g. bank or credit union).  The fist mortgage lender will lend up to 50% of the value of the property with the SBA agreeing to fund the next 35% with the owner providing 15% equity.  The first mortgage hotel loan is normally committed to no less than 10-years under a floating rate (e.g. spread over US Treasuries or over Wall Street Journal Prime).  The SBA 504 is a true second mortgage with fixed rates on 20 and 25-year plans.  These rates are published monthly.  These hotel loans require full recourse from the investors.

Life Companies:

Some Life Insurance Companies will issue low long term fixed rates for hotel loans.  They generally want major metropolitan cities, major flagged property, experienced operators and leverage not exceeding 60%.  Normally, the life company lender will offer the lowest interest rates, best prepayment penalty options and least restrictive post closing.  They also are non-recourse lenders.

Commercial Backed Securities (CMBS):

A CMBS loan is a good option to consider when a non-recourse hotel loans are desired, need leverage closer to 65% vs 60% and you want a 30-year amortization.  The loan documents and post-closing requirements can be restrictive.  One should weigh the advantages over portfolio lenders when considering a CMBS loan.  CMBS loans are sold into large loan pools.

Buying your first hotel, looking a major acquisition or portfolio purchase we can help select the best loan product that will best fit your objectives. See sample commercial loan rates for hotels.

Hospitality Financing:

There are many lenders that offer competitive rate for hospitality financing. Below is a list of the lenders:

  • Banks
  • Credit Union
  • Insurance companies
  • pension funds
  • REIT Trust
  • Commercial Mortgage  Backed Securities (CMBS or Conduits)
  • Private lenders

Property Class:

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.

Major Flags:

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. 

Recourse Loans:

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,
  • Travelodge,
  • Red Roof Inn,
  • Red Lion,
  • Extended Stay America,
  • Pear Tree Inn
  • Rodeway. 

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.]

Hotel Cap Rates Jan 24 2019 web page

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


On our web site you can read about specific loan products: www.caffreyloans.com/loan-products, offered by Freddie Mac, Fannie Mae, HUD/FHA, Commercial Mortgage Back Securities (CMBS) and other loan products. Want more details on sample interest rates for apartment check out Interest Rates for Apartment Loans also on our web site: www.caffreyloans.com/apartment-loans.

Have a question please contact
Mike Caffrey
Telephone: (913) 402-7077
Mike@CaffreyLoans.com
LinkedIn