In many cases, you need to spend money to make money, and managing a hotel is no different. However, investing cash into things like repairs, renovations, and updated technologies can significantly limit cash flow. That’s why most hotel managers and owners choose hotel loans to help with these critical investments. Loans help provide the capital you need without negatively impacting immediate cash flow. One important factor to consider when looking at loans is your hotel’s value. Understanding hotel value can help you determine which loans your property may qualify for.
Why Does Property Value Matter for Hotel Loans?
In general, hotel financing uses the property as collateral for the loan. This helps reduce risks for the lender if you should default on the loan payments. The value of the hotel allows the lender to understand the risks associated with lending you the money. It determines not only whether the lender is willing to provide you with funding, but also many of the particulars of your hotel loans.
For instance, in many cases hotel value affects loan amount and loan terms. The value of your hotel affects how much risk the lender is taking on. Typically, lenders have a specific loan to value (LTV) amount they will provide. This is to help ensure you have skin in the game and to help ensure that the sale of the property in case of default covers the costs of lending you the money. Also, depending on the strength of the deal based on the value of your hotel as collateral, you may have different interest rates, terms, and fees associated with the loan. Therefore, it’s essential to understand the value of your hotel when looking at your loan options.
Methods for Assessing Hotel Value
There are many ways to determine hotel value. Professional appraisers may use different methods based on different situations. In some cases, they may use multiple hotel valuation methods to come to an appropriate value. Here are some of the most common:
- Room Revenue Multiplier: This valuation method takes the annual revenue per room and multiplies it by a certain multiplier based on the market and similar properties.
- Direct Comparison: Direct comparison valuation involves comparing your hotel to similar properties to assess value.
- Replacement Cost: This valuation method involves looking at the costs for what it would take to replace the hotel. For this method, you look at things like the price of the property, construction costs for structures on the property, and the FF&E costs if you were to rebuild the hotel from scratch.
Determining hotel value can be difficult because these properties are so unlike the rest of the real estate market. Hotels rely not only on tangible assets, but also intangible assets like charm and reputation, making it difficult to assign a specific dollar amount for every square foot of space. Therefore, it’s essential to work with a team that understands hotels and their many unique characteristics. This helps ensure your lender understands not only the proper value of your property, but also the type of hotel loans that may be most helpful for your situation.
Stonehill – Specializing in Direct Hotel Financing
When you need hotel financing, our team at Stonehill is here for you. We are a direct hotel lender and specialize in providing funding for the hospitality industry. Whether you need permanent loans, hotel bridge lending solutions, or even hotel loans for construction, our team offers creative problem-solving for all your financing needs. Contact us today to discuss your financing needs with our specialists.