Financing hospitality facilities during a weak economy is much harder than in good times, as they are much more dependent on business travel than tourism. Of course, this rule of thumb is invalid in resort and theme park areas. Most motels are located along an interstate highway, while most hotels are in cities and cater to the business traveler.
These owner-occupied businesses would qualify for the same loan programs as would a free-standing retail establishment or restaurant. Financing is structured according to the size of loan, limited to $2 million. These loans can cover up to 90% of the cost.
For borrowers with a 30% down payment, there is a large variety of inexpensive financing. However, many of these lenders, especially those offering non-recourse financing, do not allow any other liens on the property. Fortunately, there are sources that provide mezzanine financing, which does not require a lien on the property.
The type of property also matters. If the property is a nationally recognized franchise or “flag”, there is much more financing available. It is almost impossible to find financing for those with no flag, as the market would anticipate difficulty in achieving occupancy.
Lenders look for the level of occupancy in existing properties, as well as the average daily rate (ADR). This ratio is the room revenue divided by the nights available in the period of measurement. If the ADR and occupancy percentage are below minimums, many lenders will not consider the facility.
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