Today's Hotelier - September 2017 - 54

FINANCE Q&A
LOANS

Create a roadmap for your

financing goals

How to use a non-recourse, non-conventional
bridge loan to pave the path to
fixed-rate, permanent financing.
by RUSHI SHAH
UST AS YOU DRAW UP BLUEprints to build or renovate a hotel,
you also need a roadmap for your
property's short and long-term
financing. Conventional sources,
such as a local bank, are the
usual route for a construction
loan. When your hotel is ready for
business, however, the door to attractive short-term options that remove the
risk of personal guaranties, give you an
out before your construction loan starts
to amortize and buy you time to ramp
up, also opens.
Wall Street, other conduit lenders and
non-bank private equity debt funds are
also looking ahead. Primarily focused on
long-term permanent debt, most of these
lenders feed their pipeline with properties of strong sponsors, with good brands
in good markets, that show the potential
for favorable cashflow after a few years'
seasoning. For certain loan amounts
(typically $7 million and higher), lenders will offer a competitively-priced,
non-recourse, two- to five-year floating
rate bridge loan to get the property over
the hump, then take it out with a nonrecourse 10-year fixed rate loan later.
They often waive their 1 percent exit fee

if the borrower refinances to permanent
debt with the same lender.
Non-conventional bridge loans aren't
just for newly-constructed hotels. The
interim funds can be used to finance
activities that will deliver future value,
such as re-flagging or renovating your
property, or acquiring and improving
another hotel. The bridge loan affords
you time to execute your business plan,
add value and stabilize your property, so
you can cash out once it is eligible for
permanent debt. And if your construction loan is an SBA (504) loan, a nonconventional bridge loan can be your
ticket out after receiving your Certificate
of Occupancy and before entering in to a
SBA B-Note through your local Certified
Development Companies (CDC). This can
potentially save you from locking yourself into paying pre-payment penalties
on the long-term SBA B-Note with personal guarantees. This frees up your SBA
capacity and contingent liability from
personal guaranties so you can do it all
over again.
If a hotel has insufficient cash flow
to cover the bridge loan payments and
other operating expenses immediately,
an intermediary will negotiate with

5 4  | SEPTEMBER 2017 | TODAYSHOTELIER.COM

the lender to fund interest reserves to
manage the shortfall, as well as working capital reserves for marketing and
salary expenses. The reserves are
funded at closing as part of the loan
amount and are released to the borrower through a disciplined budgeting
and reporting process.
Non-recourse bridge lenders focus
almost exclusively on the property
because they lend on the owner's cash
flow projections. Their rates and terms
reflect the risk they are willing to take
based on the hotel's location, flag, and
the amount of construction required to
execute the business plan. While top
brands in good markets are rewarded,
lenders may not lend to hotels in less
desirable markets or lower on the chain
scale that don't have the same level of
corporate muscle and reservation systems supporting them. At one point in
time, we were seeing hotel bridge loan
rates from one-month LIBOR + 400 basis
points for Marriott and Hilton hotels in
a primary market, to LIBOR + 750 basis
points for a Best Western in Detroit, as
well as everything in between. (LIBOR,
or the London Interbank Offered Rate,
is the benchmark rate that the world's


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Table of Contents for the Digital Edition of Today's Hotelier - September 2017

Our National Parks: Still Beautiful but in Need of Repairs
Sustainability Steadily Becoming Part of Lodging Industry Dna
Energy Efficiency Good for Wallet – and Guests
Aahoa Interview
Technology
There’s More to Led Conversions Than Just Cost Savings
Case Study
Aahoa Interview
Small Business
Housekeeping
Property Taxes
Leadership
Marketing
Finance q&a
Back of the House
Final Thoughts
Letter From the Chairman
Letter From the President & CEO
Aahoa Founding Members
Aahoa @ Industry
Classifieds
Advertiser Index
Today's Hotelier - September 2017 - intro
Today's Hotelier - September 2017 - cover1
Today's Hotelier - September 2017 - cover2
Today's Hotelier - September 2017 - 3
Today's Hotelier - September 2017 - 4
Today's Hotelier - September 2017 - 5
Today's Hotelier - September 2017 - 6
Today's Hotelier - September 2017 - 7
Today's Hotelier - September 2017 - 8
Today's Hotelier - September 2017 - 9
Today's Hotelier - September 2017 - Letter From the Chairman
Today's Hotelier - September 2017 - 11
Today's Hotelier - September 2017 - Letter From the President & CEO
Today's Hotelier - September 2017 - 13
Today's Hotelier - September 2017 - Our National Parks: Still Beautiful but in Need of Repairs
Today's Hotelier - September 2017 - 15
Today's Hotelier - September 2017 - Sustainability Steadily Becoming Part of Lodging Industry Dna
Today's Hotelier - September 2017 - 17
Today's Hotelier - September 2017 - 18
Today's Hotelier - September 2017 - 19
Today's Hotelier - September 2017 - 20
Today's Hotelier - September 2017 - 21
Today's Hotelier - September 2017 - Energy Efficiency Good for Wallet – and Guests
Today's Hotelier - September 2017 - 23
Today's Hotelier - September 2017 - 24
Today's Hotelier - September 2017 - 25
Today's Hotelier - September 2017 - Aahoa Interview
Today's Hotelier - September 2017 - 27
Today's Hotelier - September 2017 - 28
Today's Hotelier - September 2017 - 29
Today's Hotelier - September 2017 - Technology
Today's Hotelier - September 2017 - 31
Today's Hotelier - September 2017 - There’s More to Led Conversions Than Just Cost Savings
Today's Hotelier - September 2017 - 33
Today's Hotelier - September 2017 - 34
Today's Hotelier - September 2017 - 35
Today's Hotelier - September 2017 - Case Study
Today's Hotelier - September 2017 - 37
Today's Hotelier - September 2017 - Aahoa Interview
Today's Hotelier - September 2017 - 39
Today's Hotelier - September 2017 - Small Business
Today's Hotelier - September 2017 - 41
Today's Hotelier - September 2017 - Housekeeping
Today's Hotelier - September 2017 - 43
Today's Hotelier - September 2017 - Property Taxes
Today's Hotelier - September 2017 - 45
Today's Hotelier - September 2017 - Leadership
Today's Hotelier - September 2017 - 47
Today's Hotelier - September 2017 - 48
Today's Hotelier - September 2017 - 49
Today's Hotelier - September 2017 - Marketing
Today's Hotelier - September 2017 - 51
Today's Hotelier - September 2017 - 52
Today's Hotelier - September 2017 - 53
Today's Hotelier - September 2017 - Finance q&a
Today's Hotelier - September 2017 - 55
Today's Hotelier - September 2017 - Back of the House
Today's Hotelier - September 2017 - 57
Today's Hotelier - September 2017 - 58
Today's Hotelier - September 2017 - 59
Today's Hotelier - September 2017 - Aahoa Founding Members
Today's Hotelier - September 2017 - 61
Today's Hotelier - September 2017 - Aahoa @ Industry
Today's Hotelier - September 2017 - 63
Today's Hotelier - September 2017 - 64
Today's Hotelier - September 2017 - Classifieds
Today's Hotelier - September 2017 - 66
Today's Hotelier - September 2017 - 67
Today's Hotelier - September 2017 - 68
Today's Hotelier - September 2017 - 69
Today's Hotelier - September 2017 - 70
Today's Hotelier - September 2017 - 71
Today's Hotelier - September 2017 - 72
Today's Hotelier - September 2017 - 73
Today's Hotelier - September 2017 - 74
Today's Hotelier - September 2017 - Advertiser Index
Today's Hotelier - September 2017 - Final Thoughts
Today's Hotelier - September 2017 - 77
Today's Hotelier - September 2017 - 78
Today's Hotelier - September 2017 - cover3
Today's Hotelier - September 2017 - cover4
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