How to Refinance a Hotel
The principle behind refinancing a hotel is the same as refinancing any other property. The owner of the property borrows money against the value of the property which will be paid back over a pre-defined term. Many hotel owners use a refinance to lower their interest rates, refurbish their hotel or make investments in other hotel properties. Refinancing a hotel can also add cash to the balance sheet of a hotel chain which can provide them extra leverage or borrowing ability when trying to diversify their assets.
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Instructions
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Contact a lending institution which specializes in corporate or commercial real estate refinance. National Commercial Funding, HVS, and Vanderbilt Lending are all companies which specialize in hotel refinance in the United States. Inform the company you are looking to refinance your hotel.
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Provide the general parameters of the loan you are seeking. Include the amount of money and the length of time you wish to pay back the loan. You and the lending institution may discuss in general terms the interest rate it will offer.
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Fill out the application to refinance your hotel. The application includes slightly different information than when you are trying to refinance a personal home. For instance, the lending institution may ask for occupancy records and about your experience in the hotel business. Other information are corporate tax returns, profit and loss statements and disclosures of any other loans or liens against the property. Also, provide the lending institution with a STAR Report for your hotel. The STAR Report, published by STR Global, is a report which details and tracks relevant market data for your hotel as well as other hotels in the surrounding area. Statistics such as occupancy rates and average room rate are tracked. As of 2010, more than five million hotel rooms are part of the STAR Report performance survey.
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Receive the initial loan document paperwork. Just as when you are purchasing a home, a preliminary set of papers which outline the terms of the loan as discussed will arrive. You will be required to sign documents which state that you understand the terms of the deal and give lending institution permission to continue to process the loan in accordance with state and federal law.
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Order an appraisal of the property. Before the bank proceeds with processing the loan, they want to make sure that it is worth what you think it is as a property. Either you or the bank will hire a professional commercial real estate appraiser to appraise the property. The appraiser take into account things such as the location, quality of the rooms, amenities and comparable hotels in the area to determine the value.
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Answer any questions that the loan processing department has regarding the supporting documentation. For instance, if a disgruntled guest who slipped and fell by the pool filed an insurance claim against the hotel, the lender may want to know that the case or settlement is complete.
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Receive the final terms of the deal. After the appraisal and loan application has been fully vetted, you will receive an accurate closing statement from the lending institution which details everything from the amount of money you are borrowing, the interest rate, length of the loan, document fees, recording fees, points you are paying and any other monies which will be due to complete the refinance.
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Close and record the loan. In the same manner that you have a closing on a residential property, a closing for a hotel property will occur. Sign the final documents which complete the transaction. Upon your signature, the new lending institution pays off the previous loan or loans, and you are now be responsible for paying the new lending institution under the terms of the deal which was agreed upon.
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Tips & Warnings
Shop around for competitive rates. Just like when you buy a piece of residential property, it behooves the borrower to search for the best loan on the market. The cheaper the money is to borrow, the more profit the hotel makes over time.
All loan documents you receive from the lending institution should be reviewed by a commercial real estate attorney. Make sure you understand each document before signing and returning to the bank.
References
Resources
- Photo Credit hotel image by Yuriy Rozanov from Fotolia.com
