Hotel Investing/Down payment

[Kyle Davis]

Hello My BP friends.  I have a situation.  I'm getting into the hotel investing scene and have a situation.  I'm planning on building a franchised hotel in my market location and already have many of my "ducks" in a row.  I got a slam dunk financing package, I hired a 3rd party feasibility study to create the feasibility study and give me a 10 year pro-forma (Which looks great by the way), have my contractor lined up and have everything ready to go except the down payment that the bank is requiring (20% down).  So here's the rub: The franchise actually recommends having at least 25% down (which in our scenario is $1,000,000).  I currently have 500k raised.  Technically, the bank will allow us to go forward if we only have 20% down (which is 800k).  I have a strong chance to lock in a gap loan fund to get us the remaining 300k, but at the end of the day that is a loan and I will have to pay it back.  The interest on it is slightly higher then the banks.  For the record, the bank quoted me 4.25% interest over 20 years, balloon at 5 years.  Gap loan is around 5% with same year terms.  Personal guarantee for the main bank is 125% of your cash in the project.  SBA is making one of the partners (probably going to have to be me) sign an unlimited personal guarantee on $1,000,000 of the loan.  (The other main bank is doing $2,000,000).

I've done many 0 down deals with single family homes, tri-plexes, etc etc etc and I'm perfectly comfortable with that model as I know the local real estate like the back of my hand and know how much to pay for properties to cover my rear end in case I need to liquidate. (Making sure I'm at 70-75% LTV AFTER I repair the property). But the properties I invest in are very cheap and if crap ever hit the fan with them I could easily pay for the monthly costs until they sold. But now this project is in the millions and if crap hit the fan and I couldn't work out a loan modification, I would have to declare bankruptcy. I could weather the 125% of my money in the project, but the unlimited personal guarantee on the $1,000,000 would screw me.

So where I'm struggling on is that I know it's a slamming good deal, the demand is there, the numbers make sense and I'm very confident in the project.  I've already spent 24k on the project so far so I've been putting my money where my mouth is.  But on all the other deals I've ever done I have always ran a "worst case scenario."  And I've always been comfortable with that scenario if it ever hit.  This one is different though as it would basically mean bankruptcy.  

That being said, is anybody on here in the hotel industry or large apartment complex industry that could throw a couple pointers my way?