Usually borrowers focus on actual operating expenses when in reality, operating expenses are sometimes underwritten significantly higher in the structuring of a loan. In addition to the due diligence a lender would do for a real estate loan, an experienced hotel lender will want to ensure it understands everything about the hotel, its operations, occupancy, rate history, market penetration, finances, employment conditions, management, compliance with applicable laws and brand requirements.
Below are the most common adjustments: Operating expenses will be adjusted. Certainly other factors are also analyzed in underwriting hotels i. It is our job to help craft an explanation in a manner that is easily digestible and viewed favorably in the eyes of a lender.
Lenders implement a series of underwriting adjustments to determine an "underwritten" NOI.
Therefore the financing of hotels all comes down to the consolidated operating statement of all the various departments of the hotel. Because your question does not specify what type of corporation, I will answer for both a C corporation and an S corporation.
Lenders have the ability to price in longer open periods, with the cost varying amongst lenders.
Profits earned by a corporation are taxed based on corporate tax rates. The hotel lender needs to look beyond the reports it is receiving, and look at the facts and circumstances carefully - then require that the reports be tailored accordingly.
Presenting and explaining a detailed schedule of recent capital improvements is important ammunition to effectively present your case for lower reserves.
Are the reports consistent with the hotel operator's reporting requirements under its management agreement? The shareholders are taxed at their individual tax rate for their proportionate share of the ownership.
There are, of course, many other things that an underwriter will look at when calculating income from a C or an S corp, but they are too numerous to go through here. For full-service hotels, the minimum is approximately In both cases, it is time and money well spent. Since all profits are disbursed annually to its shareholders, the S corporation retains no taxable profits.
Any income or losses from this analysis is limited to the borrower's percentage of ownership reflected on the K If your franchise agreement is expiring near the beginning of your loan term, some heftier structure may be required with the lender first asking if you can extend your franchise agreement early.An underwriter considers the relationship between lease termination and loan maturity to assess how a new lender will view the quality of the property’s cash flow if the loan is to be refinanced at maturity.
May 17, · 1) is that full-service hotels should have higher expense ratios (b/c of food and banquet costs) most likely in the 40% range on stabilized income. Limited service hotels w/o food service should be in the 35% range on stabilized income.
Property Information. a. Hotel summary (Brand, Brand History, # of Rooms, Year Built, Construction, etc.) a. Site plans or survey.
b. Franchise Agreement (include latest punchlist or inspection report). May 05, · When attempting to underwrite loans, the key to success is gathering the right information.
Loan underwriters must use data from a myriad of sources, including bank statements, credit reporting agencies, utility assessments, tax assessments, and additional financial documentation%(27). A significant new restraint on future hotel lending by commercial banks and by savings institutions is the Uniform Rule on Real Estate Lending established by the four banking agencies (the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision).
Oct 10, · What every hotel lender needs to know about HMAs and hotel franchise agreements. What every hotel lender needs to know about SNDAs. What every hotel lender needs to know about cash controls.
What every hotel lender needs to know about hotel due diligence. The content of this article is intended to provide a general guide to the subject matter.Download