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Preferred equity hotel financing may be the right option for your funding needs.

There are many hotel financing solutions available for your property. Preferred equity financing is one popular option which can provide extra funding for projects like renovations, acquisitions, recapitalizations, and partner buyouts. In this article, we’ll discuss what preferred equity is and how it differs from another common type of hotel financing. 

Preferred Equity Hotel Financing Explained

Preferred equity financing is basically what it sounds like. It is a type of equity for investors with preference over common equity. Generally, it’s subordinate to senior debt but senior to common equity. So, when organizations distribute profits, the preferred equity entity gets paid first in the amount of their preferred return. This preferred return is usually a fixed percentage. 

Preferred equity can offer a more flexible option for hotel financing. Many hoteliers use it when conventional and mezzanine financing either isn’t available, or isn’t enough to complete a project. 

Here are some of the things we offer through preferred equity financing:

  • $3-20 million available for preferred equity hotel financing
  • Preferred returns starting at 13%
  • Up to 95% loan to value or loan to cost

It’s important to note that this type of financing is typically best for more established hotels. It’s not common to close with preferred equity behind hotel construction financing. When this does happen, there are typically added contingencies until the hotel reaches positive cash flow. 

Mezzanine vs. Preferred Equity Financing

Many people get mezzanine and preferred equity financing mixed up, but they are actually quite different. Mezzanine hotel financing is a hybrid of debt and equity. This means that the hotel lender can convert the debt to equity in case of default. It acts as a loan in the capital stack. Amortization for these types of hotel loans is generally interest only, though it may be matched to the senior loan for the property. They offer up to 75% of loan to value or loan to cost. 

By contrast, preferred equity acts like equity. You pay it off through distributions from profit or cash flow after repaying the debt. For preferred equity, you pay until you reach the preferred return on the initial investment.

Direct Hotel Lending from Stonehill

When you need funding for your hotel, choose Stonehill. We are a direct hotel lender offering flexible financing solutions for the hospitality industry. Our experts understand your strategy and help you execute it through attractive financing options tailored to your property and operations. Since our founding in 2014, we have provided over $2.1 billion in loans and investments to hotels nationwide. Because we specialize in hospitality loans, you know you can trust our originators to work with you and find the right funding options for you. Contact us now to talk to our originators and find hotel financing solutions.