Accommodation property investments have always been viewed as risky by commercial lenders until the market proved itself active and highly lucrative in recent years. Both traditional and non-traditional lenders have been interested ever since.
Hotel financing providers can be grouped into two - portfolio lenders and conduit lenders. Portfolio lenders are banks and other traditional lenders who provide mortgage loans and keep them on the balance sheet until their terms expire. In contrast, conduit lenders, also known as Commercial Mortgage-Backed Securities (CMBS), provide commercial mortgage for the purpose of securitizing loans and putting them into asset pools, which are then grouped into various bond classes. The ultimate goal of conduit lenders is to sell these pooled assets to open market investors.
Portfolio lenders have been the main players in the hotel lending market ever since, but conduit lenders are now gaining more popularity and play a much bigger and more competitive part in the hotel financing business. National banks and similar lending institutions have been traditionally conservative in their approach to hotel financing because of perceived risks in hotel operations.
Such risks were seen to be particularly high in new construction financing, compared to financing for an existing hotel with good cash flow. A borrower would probably consider various lenders to fund the project at different stages of construction. This eased the risk for the lender, increasing the chances of the project being financed.
Nowadays, with the endless expansions and investments seen in the accommodation industry, lenders have relaxed and are even more competitive than ever, lowering point spreads, increasing loan-to-value (LTV) ratios, and making more borrower-friendly terms.
During term negotiations, mortgage lenders may decrease the point spread and hike the LTV, depending on their relationship with the client and that client's financial situation. Personal guarantees are nearly always a must and the lender will want to expand the provided services. Thus, it's usually best to first talk to the lender that takes care of the hotel's daily banking transactions. It is usual to have a 1% placement fee added to the mortgage's principal amount.
The exact requirements for financing vary depending on the lender, but the most basic issues they consider when approving an application include the borrower's financial information, location, flagship or branding, background, market value appraisal, revenue sources, and environmental commitment if applicable (for example, for hotels located along coastlines). Those who are considering buying or upgrading a property should make it a point to do their homework so they can negotiate the best possible deal. Visit now our website to know further: assetsamerica.com
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