At LoanLynx, we can guide and assist our clients throughout the entire lending process. Whether the client is evaluating a purchase or considering a refinance on a hotel property, our team is always available to answer any questions the borrower may have. The due diligence for analyzing a hotel loan is much more involved than a general-purpose commercial real estate building, and we understand the hurdles and daily challenges that hotel owners/operators face. When dealing with a hospitality loan, there are many items to consider. Our team has the experience and expertise to help our clients every step of the way.
Here are some main points of reference we analyze, and can help assist our clients with, in regards to hospitality financing:
Collateral Type & Location
- Limited-service vs. Full-service
- Interior corridor vs. exterior corridor
- Amenities offered – Such as WiFi, Spa, Gym, etc.
- Age and condition – what ‘Property Improvement Plan’ items are needed (dictated by Franchisor)
- Associated Flag and Franchise agreement; overall market and brand recognition and reputation as a national chain
- Location draws including freeways, airports, businesses, attractions, tourism, etc.
- Current, new and planned inventory for the market vs. demand in the market & examine possibility of room saturation
Operating Plans & Financial Statements
- Do the profit and loss statements reflect the real costs of operating the hotel?
- Is the NOI margin in-line based on the collateral type?
- Working capital adequecy due to seasonality in business (especially true for East Coast properties)
- Business plan and future projections with supported detailed assumptions
- On-site owner/manager vs. contracting with a management company
- Owner operated vs. managing the property through a professional GM
- Review terms of the management agreement
Value Analysis & Third-Party Reports
- CAP rate and RRM (Room Revenue Multiplier) assessment
- Did the appraiser consider the market forecasts, economic volatility, and demand? What is the competition for the market segment? Is the customer base transient or does the property have business draw due to its location or its amenities?
- Current Environmental report indicating it is free and clear from any environmental concern, with no further recommendation, or verification that appropriate remediation measures have been completed
- Property Condition Assessment as well as repairs and maintenance history & evaluating any deferred maintenance
Review of Current STR Report
- ADR, OCC, RevPAR for the subject compared to its competitive market set
- Seasonality of demand
- Rating amongst competitors and RevPAR within competitive set of similar properties
- Hotel owner must have financial strength/support as well as industry experience to comply with outlined franchise agreement terms
- Costs associated with franchise fees
Quality Assessment Report from Franchisor
- Current and future scores evaluated by the franchise brand
- Property condition level requirements to have passing Quality Inspection scores
- Customer reviews on sites like TripAdvisor, Google, etc. for insight on management of the property and customer satisfaction