Thinking about investing in a hotel? Hotel ownership can be incredibly rewarding, but the process of financing and purchasing such a property differs from other avenues of business ownership. Borrowers should know several things before pursuing hotel ownership.
Franchise agreements can be deal breakers when finding a lender, largely because major brand hotels often have agreements that do not allow for assignability to lenders or assumption by foreclosure purchasers.
Hotel Management Agreements
Most lenders will require that you have a hotel management agreement in place. This agreement cannot be terminated or changed in any way without the lender’s approval.
All hotel loans require some type of cash management mechanism be in place that requires all revenues from the property to be deposited directly into a bank account.
Another consideration with hotel ownership is the PIP reserve. In most cases, you’ll be required to deposit money to pay for the PIP, as well as a contingency fund, in a specific reserve account.
Annual Operating Budgets
In some cases, the lender will have control over your annual operating budget.
Many hotel lenders place strict limits on the amount of debt the hotel’s owner can accrue outside of the hotel mortgage loan.
If the lender feels that any trademarks or service marks used in conjunction with the property have value, they may require these to be registered.
The lender will ensure that liquor licenses can be transferred to a new buyer in the case of a foreclosure, if alcohol sales are important to the property’s success.
Lender Remedy Timing
Most states have different requirements for hotel foreclosure than those that apply to foreclosure on personal property.
Those interested in hotel ownership should understand that lender approval may be necessary in many different instances, including management changes, but these instances can be negotiated.
Still interested in hotel ownership? Contact Commercial Capital Partners to learn more.