Building a new hotel is a large investment, which means you likely need hotel construction financing solutions. There are many different types of loans to help you construct a new hotel. Our team can walk you through the options that make the most sense for your circumstances. However, it’s good to have some basic information about common hospitality construction loan options. In this article, we’ll explore a few different types of commercial loans you can use for hotel construction.
Hotel Construction Financing Options
There are many options for funding your hotel construction project. Construction loans are one of the most common, as they are specifically for hotel construction financing. Each loan is a little different, but they can typically provide up to 80% LTV and loan terms are generally three to five years. Funding from these hotel loans typically comes in waves as you hit construction milestones. For instance, after finalizing architectural design, you receive a set amount to pay those professionals.
You can also use property assessed clean energy (PACE) loans for hotel construction. While these loans won’t provide all the financing for a new construction project, they can help provide some funding. These loans can provide up to 30% of the value of your project and offer long terms, up to 30 years.
Takeout Construction Hotel Loans
If you already have a construction loan that you wish to refinance, there are also a few different options. Also known as construction loan takeout, financing from these loans help pay off construction loans to take advantage of more favorable loan conditions, such as lower interest rates or longer loan terms. Bridge and mezzanine loans are common to use for this purpose.
Both of these types of loans offer short-term financing. Bridge loans use the property as collateral, which allows for faster execution of the loan. Bridge loans can be used for up to 75% LTV and terms are typically two to five years.
Mezzanine loans are similar to bridge loans in that they are shorter-term and can also provide up to 75% LTV. However, these hotel loans are tied to senior loans and the lender can convert debt to equity in case of default. Mezzanine loans don’t use the property as collateral and are instead secured by equity under a senior loan. You can also use mezzanine loans in addition to hotel construction financing to fill financing gaps to deal with things like cash flow issues during and after construction.
Direct Hotel Lending from Stonehill
Our team at Stonehill makes hotel financing easy for the hospitality industry. We specialize in direct hotel lending solutions. Our team works with you to understand your financing needs and find options tailored to your situation. We provide creative financing solutions for everything from hotel construction to acquisitions. Our team has completed over 150 transactions and we are sure we can find financing options for you. Contact us today to start discussing your financing needs.