New Hotel Construction Financing

Experience Counts 

There are 20% more rooms under construction today than there was a year ago, 90% of them are in hotels with 200 rooms or less, and 65% of them are in the upscale or upper-midscale segments. 

Money is available for hotel/ development construction for borrowers who have experience in the business and a solid track record of performance.  Newcomers to the industry need to team-up with experienced owners or operators to improve their chances of securing financing. 

Favorable financing is available for nearly any kind of hotel/ development project—conversions or new construction, branded or unbranded, gateway city or secondary market—but if you don’t have solid experience and a strong track record in the business you still may be able to secure financing, but at a much higher rate.  

Lenders really like hotels again. As an asset class, hotels have outperformed every other major class in commercial real estate in the past 18 to 24 months, and it continues to outpace even what some had considered being lofty expectations.    

Lending is loosening for a number of reasons, the most important of which might be the performance of the hotel market.  

The industry is realizing some of the strongest margins experienced in a long time because operators are able to push (average daily rates), and occupancies are at an all-time high. The fundamentals are strong, so from a (hotel) owner’s standpoint it’s an awesome time to be in the market.
 
While money is plentiful, most lenders still want to deal with borrowers who have experience in the business or can partner with a seasoned hotel veteran.

Lenders want to work with people they know are going to be successful, and there are too many other opportunities to place (financing) to bother with a developer who may not be able to make a successful project.  A newcomer to the industry is advised to team up with someone who has developed or operated hotel assets previously. It’s the best way to cut your teeth in this business.

NEW DEVELOPMENT
Developers looking to build new hotels should be able to attract financing, even for projects in secondary and tertiary markets and for boutique and unbranded hotels.

We have sourced two major lending sources that are providing up to 100% non-recourse financing that can include the acquisition of the real estate. A 10% deposit of the loan amount is required and is refunded upon completion of the construction. 

Contact Us Today for Free Suitability Assessment of Your Project

To keep our underwriters happy we have to be selective for whom we will source loans. The key driver is the experience of the sponsor and or his team. We have spent a lot of time trying to get developers first hotel deals bought; the odds improve greatly with two or three under their belt.

A lay up for us is a strong, flagged project in a heavy business demand generator market.

While branding is important to most lenders, not all projects need to be chain-affiliated. At one time many lenders only considered projects with top-tier brands, but recently we are seeing a number of successful non-branded hotel loans.

There are some other secondary markets where the barriers are low, but this is a whole different kind of animal. More hotels are opening all the time, as are apartments, where many of the people who live in hotels today are moving.

Lenders are very prudent with the deals they’re doing and the sponsors they’re lending to. Many of the deals that we are getting done are typically big, landscape-changing projects, not deals done by local lenders. The market is very discriminating as to what will get built.  We submit to underwriting only about 20% of the new hotel development projects that we review. Approximately 80% of those packages will get financed. These deals take a lot of time, and some (developers) may not realize the scrutiny involved. Many people don’t understand that construction documents need to be about 70% done before a lender will issue a term sheet.

We would be glad to provide a free review your project today to determine suitability for our underwriters. Call or email me at 954.439.0612 - tstidham@targetsearchgroup.com