Lets talk Hotels in NJ. How does the financing work?

Question

Interested in beat up hotels. Give me some creative financing moves to make this happen. I have access to money but I am frugal so If someone can help I am all eyes to the computer screen and inbox

Account Closed · Answer

Curt. I do think there is space for properly run family owned hotels/motels but as in  most R/E situations planning and execution are key. I believe there are niches out there that can be used to flourish a business.... I do hope you fulfill your aspirations.

Curt Smith · Answer

I've been interested in branching out of SFR landlording and owning / operating a small hotel, MF, trailer park has been on my study map.

I've read there's many ma and pa hotels where the owner is willing to owner finance most and in some cases 100% of the purchase.  We know it would be crazy to buy a property with zero operating or rehab funds,,, but those are the basic details.

If I had the time I'm interested in digging into the property search and negotiation details to find such opportunities.  I'd like to better understand whether this a viable business plan taking over poor performing ma-and-pa hotels in small but growing cities?

Account Closed · Answer

I appreciate the advice. Alot. This might be a project we (myself and or myself and other teammates) can have our very young and mature children work in and on. The Lic professionals I work with are great bus people in fact sometimes to great and they need my vision to see the diamond in the rough. We will investigate this greatly over the next few weeks so expect some P-messages. I must say a group of investors (foriegn) I have worked with 3-4 years ago on residential deals were in the hotel space in Ohio Pa and NJ.

Thanks

Chris Winterhalter · Answer

@Gina DiM

Independent hotels are much tougher (depending on location).  Also smaller hotels are tough to finance and difficult to operate.  You have a set amount of fixed costs involved in running a hotel i.e. general manager, front desk, accounting, reservations, housekeeping, maintenance etc etc.  I would talk to small operators in the space to get their expertise.  Are you planning on being an owner operator?  BP might not be best place to seek advice on this topic.  Good luck!

Account Closed · Answer

Chris,

I would like to keep this post active for now if OK and I will reach out to you as appropriate in private. That said we would want an independent Hotel for this venture (I am involved with and in fact a bit of a control freak) but flexible. I have a strong team of professionals that are also strong business people. Most anything a franchise offering can provide I strongly believe we have the right people in play with the "right" stuff to compete. I have already reached out to the teammates and put forth my idea and thoughts about creative income sources for the property. We have lending sources but I think an expert in the space could afford some insider tips on additional creative financing options. FTR a 20-30 unit building is what we are seeking but again our Bus. Plan financial and end goal parameters would dictate that.

Chris Winterhalter · Answer

@Gina DiM

Building your capital stack for hotel deals...especially distressed product can be very difficult starting out.  Are you planning on going after branded or independent hotels?  Independent hotels are more difficult to finance.  All lenders want to see a proven track record with hotels from the ownership group or at least the management group.  Depending on how distressed the hotel is there are a variety of options for financing.  The CMBS markets are active along with a lot of other niche lenders in the market place.  Local banks are also active in the space however they are generally very conservative on hotels (depending on the lender).  Let's say you can get senior debt at 60% LTV....you need to fill the rest of the bucket for financing, capital improvements, FF&E, and any PIPS specifically required by the brand.  The other 40% can be a mix of your own cash, investor cash, mezzanine debt, bridge financing etc etc.  Bridge and mezz debt are going to run you 8-12% depending on where you go.  Every deal is unique however I would plan on raising a chunk of the capital especially for distressed deals.  The more cash you have on your side (and the more you are willing to put down on the deal) the better pricing you will get.  Get connected with a strong management company with a good track record that can help with the redevelopment process.  We have a hotel construction company and really understand that side of the business. Feel free to shoot me a call if you are looking for some guidance on estimating costs.