Hotel Loans – the Guidelines are Changing
- on 06.23.10
- Filed Under Business
- 9 Comments
It’s March 2008 and I’m currently working on a rate and term refinance, $3.8 million of an owner occupied Wingate hotel loan in the Midwest. The owner boasts an 82% occupancy for 07, $2,000,000 of gross income, property was built in 02 for a cost of $5.3 million so we’re looking at a loan to value of approximately 63-67% depending on the appraisal works out. No issues on the transaction like bad credit, liens, judgments – nothing. Slam dunk transaction, right? Find the best lender with the best terms, rate and call it a day.
Not so, of the top ten banks in this arena, rather than the enthusiastic expected response of the bank representative snoozing me for the package, I’m getting more of the “we don’t want to create any more enemies right now” and the “we just really want to wait and see how the issue on Wall Street shake out before we start reviewing packages and quoting rates.” Definitely a disappointing reality check to say the least.
The borrower on this particular transaction was quoted 6.5% on a nonrecourse, 5 year fixed, 10 year term, 25 year amortization loan from a major national hotel lender 3 weeks ago – that lender/deal has been taken off the table. The 7.5% -7.25% that I have been able to find has not been received well as the borrowers expectations where set in the mid 6’s%.
In general, on a cash out basis, borrowers can now expect a max 65% if not more like 55% that’s currently market. Rate and term refinances now need a good story and borrowers can expect to still get a loan closed at 70% but will get market rates/terms at 60-65%. DCR’s that we could get away with at 1.3 now have been changed to a real 1.4.
Historically Hotel Loans come in and out of favor with lenders more so than with any other building type. There has been a tremendous amount of volatility in the market over the years and the banks seem to have already pulled the plug, for the most part.
More startling is that we have talked to many experts in this arena, on a daily basis, and everyone seems to be in a state of shock and confusion. Normally it’s the wait 6 months and we should be back to normal. Currently it’s more the attitude of “we don’t know”.
In general, if a hotel owner thinks that they may need to refinance and or purchase a new hotel, it may be wise to get started immediately as it may be a few years before we get back to rates/terms that we are still at today.
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.
I suggest you to buy a used car with your own cash for $2000.00
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.
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)
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