If you’re relatively new to the hotel development process, you might wonder how it works. For instance, when do you secure hotel construction financing? When do you choose a location? Do you need financing before you finalize hotel designs and construction contracts? We will answer these questions and more in this blog. Read on to learn more about the hotel development and construction process.
Planning for a New Hotel Development
The first step in any hotel development project is to plan. You likely have an idea in mind, but now it’s time to start really digging in and finalizing concepts. This is the time where you conduct market research to make sure your concept fits the area’s needs. For instance, you likely don’t want to build a luxury resort where primarily only business travelers visit.
This is also when you start planning for finances, such as budgets, cash flow, and what types of hotel loans may work well for you. You should also choose a development team for your project. Throughout this process, you should get a pretty good estimate of what it will take to build your new hotel.
Once you have a good idea of these elements, it’s time to start looking for the perfect location for your new hotel. Finding the right location is important for your property’s success and can affect your hotel construction financing options.
Securing Hotel Construction Financing
After planning for your hotel development, you can take these plans to a lender for financing. The loan originators can then help you determine what types of financing may work best for your project. As a direct hotel lender, we offer some pretty attractive loan options for hotel construction.
Here are some of the guidelines we offer for our hotel construction financing:
- Between $10MM and $50MM
- Interest rates between 7% and 10% (fixed or floating)
- Up to 80% loan to value
- 3 to 5 year terms
- Loan fees between 1% and 2%
- Recourse or non recourse options
- Completion guarantees required
Once you have the hotel financing you need, usually you will procure the site with part of the proceeds from the loan.
However, before you can begin construction, you need to complete feasibility studies. These determine what kinds of environmental impacts hotel construction will have as well as if the site is physically able to support the type of structure you’re considering. These are the final steps before your construction team can begin work.
Moving Forward with Construction
After securing your hotel construction financing, finalizing designs, and signing contracts with the development and construction teams, then you can move forward with construction. This stage of the process includes a lot of activity, from performing the sitework to prepare the land for a building to putting the finishing touches on your hotel. This process can take several months to over a year.
Generally, you will have a construction manager overseeing day-to-day activities on the site and providing you with regular updates on your project. Once complete, typically you will walk through and provide a final punch list of items to complete before you’re ready to start receiving guests. However, when you’re close to completion, many hotel owners and managers choose to start marketing to build anticipation in the new property so you can hit the ground running with reservations and income.
Hotel Construction Financing from Stonehill
When you need hospitality financing, our team at Stonehill is here to help. We have provided billions in hotel loans and investments since our founding in 2014. Our goal is to provide the hospitality industry with creative financing solutions tailored for their needs. Contact us today to discuss your hotel loan and financing options with our experts.