Hotel Loans – Now in the Credit Crisis
- on 04.27.10
- Filed Under marketting
- 9 Comments
Where do you start? Hotel loans whether for purchase or refinance have taken a firm beating in this credit crisis. Basically, there are now only a few options on hotel loans. Probably 90% of all conventional hotel loan programs are gone. Deals over $3,000,000 are taking the worst of it, flagged or unflaged, conventional or nonconventional.
As many readers are aware, the issues on the commercial secondary market is the immediate cause of this mess. Very few banks are willing to portfolio hotel loans and instead are used to funding and selling the hotel debt off into the secondary market. Now since there are very few buyers, banks have to either pass on the deal or fund it and hold onto the loan in their balance sheet for the long term. Most banks would rather portfolio more general purpose properties like office or retail before they’d consider hotels. So deals that banks where willing to underwrite and fund just a few months ago, they are now backing away from in fear that there won’t be in buyers of the hotel loan.
Fixed rates on hotels are virtually gone. The vast majority of all hotel loans are now quarterly adjustable, based off of Prime. The typical margin is 2% – 2.75% over. Prime is now at 4% so most borrowers are looking at an effective rate of 6% – 6.75%. Ironically these are some of the best rates we seen in long time. But of course borrowers have to live with adjustable rates, and for some borrowers this is hard to do. Many don’t care (that much) and or recognize that this is the only option.
Debt coverage ratios have in general become more conservative (no surprise here) to a minimum 1.35. Some banks want to see ratio’s closer to a 1.4 -1.5 on conventional loans. Which basically means that the funding banks are “cherry picking”. It also means that the loan to value will be very strong, most likely lower than 50% because the two ratios are tied together.
All in all, SBA loans rule the day with hotel financing. Again borrowers should be thinking about loan amount less than $3,000,000 to have more options. And on a positive note, despite all the carnage, borrowers are getting great rates, and high levels of financing through these government sponsored programs, like up to 85% on purchases and 80% on refinances. As always, the trick here is finding the banks that are actually funding deals with the government programs. Just as with conventional loan most banks that used to do SBA loans are “on hold” until the market returns.
Not really… that's really why credit cards exist.
First arrange to see the manager of a bank, and talk to him/her about your intention, and how you would like to change/improvise on the target hotel.
Try to convince him/her of your idea, and if this seem workable the bank will advise you on the follow up.
However be ready wilth a business plan which should include factors such as marketing and services (since this is going to be a hotel) and also how you would like the funds to be used and in what way you can re-pay the bank.
You must be going through a broker rather than a direct lender. I get FHA loans closed as quickly as needed but my company underwrites the file. Most get a DU approval on the spot & then it is just a matter of gathering the info & getting the appraisal. Sorry you are having such a problem. Call the Loan Officer & ask what the problem is & tell him if you do not get an answer soon you are going elsewhere. They will have to transfer the appraisal & FHA case number to your new lender.
I suggest you to buy a used car with your own cash for $2000.00
Again, what's with people's spelling? (above), anyway, you're talking about the toughest kind of loan to get right now. 2 years ago, no problem. If you have good credit, (670 or above) and if you can put at least 20% down, you might find some one to do this type of loan. I don't know where the hotel is, but it if is in a small town, start with the local small town banks. Don't even bother talking to someone unless he or she is at least a Vice President of the bank. With small town banks, you may even be dealing with the President and owner of the bank, so you won't get any bullshit promises from them. If they are willing to do the loan, small town banks often look at the value of the deal rather than just how you look on paper. It helps if they know the property, which they will if it is close to them. They have a vested interest in improving the area as well. Go in with a detailed estimate of the repairs and a written summary of the work you plan to perform,(written sort of like a resume of the property) as well as your intentions for the property. Even if it's not in a small town, go to a few local small banks rather than some one like Chase or Wells Fargo. Also, have you tried approaching the owners about short term owner financing instead? Good luck
You would not obtain money in the US for this, no one will lend for property outside their legal jurisdiction.
You will have to use a bank in Costa Rica.
Expect to pay at least 40% upfront in cash. (same as in the US)