| Commercial Loan For Your Hotel Property | | | | An exterior corridor property is a hotel property |
| Getting a commercial mortgage for a hotel property | | | | where you can actually see the door to the rooms |
| is very similar to getting a commercial mortgage for | | | | from the exterior of the property. These are |
| an owner occupied commercial property with a few | | | | sometimes referred to as a motel instead of a hotel. |
| subtle differences.Visit Here Now | | | | The term motel is actually derived from the term |
| The driving force for the majority of most hotel | | | | motor hotel where most travelers would park their |
| income is the RevPar or revenue per available room. | | | | vehicle directly in front of their room. While there are |
| RevPar is most commonly calculated by multiplying a | | | | disagreements between what defines a motel and |
| hotels average daily room rate (ADR) by it | | | | what defines a hotel, there is typically very little |
| occupancy rate and is a key indicator of | | | | difference between the two outside of a lenders |
| performance. Rising RevPar is an indication that either | | | | perception. |
| occupancy is improving; the ADR is increasing, or a | | | | Most exterior corridor properties are older and |
| combination of the two. | | | | subsequently will not have the quality of furnishings |
| Although RevPar only evaluates the strength of | | | | and will have more deferred maintenance than an |
| room revenue, it is typically the most relevant | | | | interior corridor property. An interior corridor property |
| indicator of performance. While many full service | | | | is going to be more energy efficient and would have |
| hotels generate revenue through other means such | | | | a lower utility expense as a percentage of gross |
| as restaurants, casinos, conferences, spas, or other | | | | revenue. |
| amenities the majority of hotel properties are either | | | | Financing Your Hotel Property: |
| limited service flagged properties or limited service | | | | When trying to get a commercial loan for your hotel |
| unflagged properties. A limited service hotel is simply | | | | property there are a few distinct differences you |
| a hotel with out a restaurant. Because the operating | | | | can expect as opposed to financing other commercial |
| costs of the restaurant component generally run | | | | properties. A hotel property is considered special |
| higher than that of the hotel operations, it is common | | | | purpose in nature which simply means that it is |
| for the net operating income (NOI) as a percentage | | | | generally cost prohibitive to convert it to alternate |
| of total sales to be lower for a full service than a | | | | use. An office building or retail space can |
| limited service hotel. For this reason the majority of | | | | accommodate numerous types of businesses |
| commercial lenders prefer to finance limited service | | | | whereas a hotel property can only accommodate a |
| hotels. | | | | hotel. Because of this a commercial mortgage for a |
| Flagged vs. Unflagged Properties: | | | | hotel is going to be considered riskier to the lender |
| A flagged hotel property is simply a hotel that | | | | than a commercial mortgage for other general |
| belongs to a national franchise. An example of a | | | | purpose property types. A lender will mediate this risk |
| flagged property would be a Holiday Inn or a Best | | | | by taking a more conservative approach to |
| Western. For the guest, a flagged property provides | | | | underwriting a hotel property. |
| the benefits of a uniform standard that is upheld by | | | | The loan to value (LTV) for a hotel property will be |
| the franchisor. A guest could stay in a flagged | | | | lower than other general purpose property types. For |
| property on the east coast and could expect the | | | | a limited service, flagged property 65% LTV is typical |
| same flag on the west coast to have the same | | | | and that number can go down depending upon the |
| standard of cleanliness and amenities. The owner of | | | | age of the property and whether its interior or |
| the property gets the benefit of a nationwide | | | | exterior corridor. The LTV is simply a ratio calculated |
| reservation system and marketing. For this benefit | | | | by dividing the loan amount by the value of the |
| the operator is expected to pay a franchise fee | | | | property. The debt service coverage ratio (DSCR) |
| which can typically range anywhere from 5% to 10% | | | | for a hotel will also need to be higher than that of a |
| of room revenue. Because of the advantages that a | | | | general purpose property type. The DSCR is a ratio |
| flagged property has, most commercial lenders prefer | | | | that determines the strength of the property or |
| to finance them over an unflagged property. | | | | business income in relation to the proposed mortgage |
| Sometimes it can be extremely difficult to get a | | | | payment. A typical required DSCR for a hotel |
| commercial loan for an unflagged property, especially | | | | property by a commercial lender is 1.30 which simply |
| if the property isn't in what is considered a | | | | means that for every $1.00 in proposed mortgage |
| destination resort area. A destination resort area | | | | expense there should be $1.30 available to pay it. For |
| would be an area like Miami, Myrtle Beach, or Orlando | | | | other general purpose property types the DSCR is |
| FL. An unflagged property in a destination resort is | | | | lower. A DSCR of 1.20 is common for general |
| easier to obtain a commercial loan on than an | | | | purpose property types and can go oven lower for a |
| unflagged property in other areas of the country. | | | | less risky property such as an apartment building. |
| Exterior Corridor vs. Interior Corridor: | | | | |