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Brian A. Lee is an Atlanta-based freelance writer and former
editor of Western Real Estate Business magazine. He does
work for the William Mills Agency, a public-relations company
that represents Access Point Financial on special projects.
Reach Lee at (678) 687-4049 or firstname.lastname@example.org.
Help-wanted pleas can apply to many things after a hurricane or other natural disaster ravages a city. That includes “help wanted” in the form of financing
assistance for hotels seeking to cope with the damages
caused by such disasters.
Through creative loan structuring, commercial
mortgage brokers can help lighten the burden of hotel
developers and owner-operators who need to rehabilitate or totally rebuild their disaster-stricken properties.
In such cases, mortgage brokers should first ask
their hospitality clients about insurance proceeds that
may be available to restore the properties.
Interim financing should be arranged if there’s a
shortfall on the insurance side or when an owner wants
to take the opportunity to upgrade the property beyond
its pre-disaster condition. A lender will want to know
that the projected net operating income the hotel will
achieve after the renovation will be sufficient to justify a
permanent loan to replace the interim loan used to
finance the renovation work, says David Sonnenblick,
co-founder and principal at real estate investment
bank Sonnenblick-Eichner Co.
A mortgage broker should determine the property’s performance level prior to the hurricane or other
natural disaster. Also, Sonnenblick adds, the broker
needs to know how other hotels in the market were
performing prior to the disaster.
The owner of an Atlantic Beach hotel could not rebound from Hurricane Irene after it struck the North
Carolina coast in 2011. A direct lender handled the
refinancing for the property under a new owner. The
arranged deal freed up proceeds for other needs as
well, beyond the renovation and conversion capital.
The financial institution was able to structure bridge
financing within 10 days of application. The hotel, under a new flag, reopened in 2013. With the resulting
boost in revenue, the new owner was able to refinance
the property at a lower interest rate and 37 percent
greater leverage, according to Access Point Financial.
Sonnenblick points out that lenders doing these
types of interim loans are often either commercial
banks or private debt funds. Commercial banks, compared with private nonbanks, will normally require
recourse and usually offer slightly better rates and a
bit lower loan-to-cost (LTC) ratio — look for around
50 percent to 60 percent — on interim financing for
renovating a damaged hotel property.
A little more expensive, private debt funds will offer
recovery capital in the 6 percent to 8 percent rate range,
depending on the property. They also will typically
take a slightly higher place in the capital stack. Private
Not All Hotel Lending Is Created Equal
The right disaster-recovery financing can speed a return to normalcy
By Brian A. Lee
65 percent, compared with 75 percent or more in the
last cycle, so mortgage brokers have less to work with
and may need multiple lending sources to suit their
and, in some cases, 80 percent on the LTC, with respect
to the costs of fixing the damage as a result of a hurricane
and repositioning the hotel in the market, according
Mortgage brokers should understand how the capital stack is structured and also whether lenders will
be willing to participate in deals in which they don’t
have a priority position in the event of default, says
Dharmesh Patel, executive managing director of
hotels for Colliers International and the recent chair of
Colliers’ national hospitality practice group for hotel-investment sales.
“One of the major trends in hotel development we
see in this cycle is that the borrowing is more conservative
and the developers are putting more equity into their
deals,” Patel adds. “Current debt ratios are often 60 to