Keep This In Mind While Applying For Hotel Construction Loans
There are a few things to remember when applying for hotel construction loans. First, make sure your plan is well-written and compelling. Your Executive Summary should highlight the essential points of your hotel project. This can make an excellent first impression. You should also have an old track record.
Cross-collateralize another property instead of making a down payment
One way to leverage the equity in another property to secure a hotel construction loan is to cross-collateralize another property. This is an alternative method of financing that doesn’t require a down payment and can allow you to move quickly on a high-risk property. However, it has its drawbacks. If you fail to make the payments, the lender can repossess the property and take it as collateral. Additionally, if you cannot make payments on the loan, they may freeze your bank account or charge your credit card.
You can cross-collateralize another property to finance the loan if you don’t have enough funds for a down payment. Cross-collateralization is a common practice in real estate loans. For instance, a second mortgage is a type of cross-collateralization since it taps into the equity in another property. So, if you don’t have enough money to pay the second mortgage, you can use your first property’s equity to finance the second property.
Debt service coverage ratio
A hotel’s debt service coverage ratio (DSCR) is a crucial measure for lenders when considering extending a loan for construction. The balance should be at least 1.40 times the amount of mortgage debt to generate enough cash flow to meet loan payments. Therefore, a hotel’s DSCR will be higher than a general-purpose property’s. For example, a credit tenant lease with Apple computers can have a 20-year triple-net lease.
While a hotel lender would prefer a ratio of 1.25, they will also consider a ratio of 0.8 or lower. Lenders will require an explanation for the standard ratio and quiet NOI. The borrower can increase his debt service coverage ratio by requesting a cross-collateralization loan. This method is an excellent way to increase the odds of getting a loan from a hotel lender.
Obtaining a construction loan
When obtaining a hotel construction loan, there are several things to remember:
- First, you must have a track record in the hotel industry.
- You must have internal and external resources to support your loan request.
- You must have a joint or personal guarantee with the bank. Most of the time, you will be responsible for the entire loan amount.
- You can enter into an interest rate swap to mitigate the risk associated with currency exchange.
Obtaining a hotel construction loan can be difficult, but it is worth the effort. This type of loan can be tricky because of strict underwriting requirements and a low loan-to-value. Spirides Hotel Finance Company can help you overcome these challenges and obtain the hotel construction loan you need to complete your project. Although a hotel construction loan can seem like a simple process, the fact is that it can be complicated, requiring many more documents and preparation than a typical mortgage loan.
Finding a lender with a good track record
When securing financing for your hotel construction project, finding a lender with a good track record in the industry is essential. A suitable commercial lender will have a proven track record in hotel construction loans and the necessary resources to promptly provide you with the capital you need. Spirides Hotel Finance Company is a hotel loan lender that has been around for decades and has a good reputation for delivering high-quality service.
Although some lenders are hesitant to finance new projects, they do offer a line of credit to borrowers who can prove their financial capacity to make the payments on the loan. This line of credit will also help you secure a lower interest rate than a non-recourse loan. In addition, some lenders prefer hotels in major markets, while others prefer smaller and tertiary markets.