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Debt vs. Equity: Which Financing Option Is Right for Your Hotel Project?

Hotel FinancingSelecting the right hotel financing can have a real impact on the success of your investment in these facilities. Determining whether equity or debt financing is the right choice for you can be a challenging task. Here are some tips on choosing the most practical loans and hotel financing options for your renovations, constructions or acquisitions in the hospitality industry.

Cost Advantage: Equity Financing

In most cases, equity financing can be obtained at a much lower cost than other hotel loans. By selling shares in your property, you can take advantage of your existing equity to access the funding you need to manage renovations and new acquisitions while keeping the costs as low as possible for you and your company. In some cases, the only out-of-pocket costs you will incur will involve the legal process necessary to transfer ownership interests in your company and the fees associated with that process.

Control Advantage: Debt Financing

While taking on additional debt may not be especially appealing for your business operations, equity financing arrangements may limit your ability to make unilateral decisions about your hotels and the ways in which they are managed and renovated. Taking on partners is always a balancing act between acquiring necessary capital and retaining control over your projects. Determining exactly how much control you are willing to surrender to access the funding available through equity financing is an essential step in determining whether debt financing or equity financing is the right choice for your project.

Convenience Advantage: Debt Financing

Opting for debt financing can provide you with added convenience when managing your hotel construction financing requirements. In many cases, you will have a greater range of options to choose from when selecting debt financing over equity financing. The process for debt financing is typically faster than that associated with equity finance arrangements, which can sometimes drag on for months while the various stakeholders and investors in your project provide the required information and funding needed to complete this process.

Access Advantage: Equity Financing

Business loans acquired through debt financing typically require an unblemished credit record and solid collateral for approval. By contrast, equity financing can be acquired through private investors who may not be as particular about the track record of the other investors. Because they are making an investment in a property rather than a borrower, equity investors can often overlook minor problems with cash flow and credit problems in the past.

At Stonehill, we offer practical financial solutions for the hospitality industry. We can provide access to debt and equity financing solutions that work for your business and your ongoing needs. Call us today at 713-666-2544 to discuss your hotel financing requirements with our experts. We look forward to the opportunity to serve you.

Hotel Loans for Hotel Renovations

AloftFirst impressions can have a lasting impact. Ensuring that your hotel makes the most positive impression on guests is essential to stay profitable and relevant in the modern hospitality industry. Regular updates and renovations may even be required by your franchise through a property improvement plan (PIP) agreement signed at the time of acquisition. Renovating your hotel can be an expensive process, however. Finding the right hotel loans can help you to manage the expense and disruption of these activities more easily to maintain greater productivity now and well into the future.

Hotel Financing for Renovation Projects

The U.S. Small Business Administration (SBA) offers loan programs for small to medium-sized businesses in the hospitality industry:

  • SBA 7a loans are designed specifically for the acquisition of commercial real estate and are available in amounts up to $5 million and for terms of up to 25 years.
  • SBA 504 loans work in a similar way but offer larger loan amounts of up to $20 million. The loan terms are shorter and range between 10 and 20 years.

The restrictions and paperwork associated with these government-backed loans, however, can be a significant deterrent for hotel owners and managers looking for the right hotel construction financing options. There are other options for financing hotel renovations in the lending marketplace:

  • Refinancing your hotel can provide you with cash on hand to manage upgrades to furniture, fixtures and equipment or to fund structural improvements. This approach typically requires that you already have significant equity in your hotel and may require you to provide a detailed plan outlining what the funds will be used for during your renovation project.
  • Business lines of credit can be used to fund smaller renovations, including updating signage and replacing flooring in selected areas.
  • Conventional bank loans are often available for companies that have an existing relationship with the lending institution and a clean credit record.
  • Bridge loans, as their name suggests, are designed to bridge the gap between necessary funding and the acquisition of longer-term or more favorable financing terms and arrangements.

Finding the right hotel loan for your planned renovations can help you manage these necessary tasks to keep your facilities looking their best for your guests.

Stonehill offers hotel loans designed specifically to suit the needs of the hospitality industry. We can design a renovation loan that is tailor-made to supply the cash you need for your upcoming renovation project. Our expert loan originators can provide you with the right guidance and financial solutions for your hotel. Call us today at 713-666-2544 to discuss your funding requirements with us. We look forward to the chance to serve you.

Potential Hotel Financing Obstacles for Acquiring Hotel Loans

The right hotel financing arrangements can make a significant difference in the profitability of your investment. In some cases, however, obstacles may arise that could prevent you from obtaining the financing you need for your hotel acquisition or renovation. Here are some of the most common obstacles you may encounter when seeking financing for your hotel investment.

Past Credit Issues

Recent economic downturns have left many investors with credit issues in their past. This can reduce your chance of qualifying for hotel loans for acquiring new properties or renovating your current ones. Working with a financial company with solid and relevant experience in the hotel lending marketplace can ensure the best possible outcomes for your loan application.

Franchising Agreement Concerns

For investments in franchise properties, banks will often take a hard look at the agreements in place before agreeing to longer-term financing. Most franchise agreements are written to cover 10 years or less. Lending institutions may be unwilling to approve finance arrangements that extend beyond the length of the franchise agreement. They may also require a comfort letter from the franchisor that outlines the rights of the bank if the borrower defaults on the loan. The information provided by the franchisor can have a significant impact on your chance of approval for these loans.

Property Improvement Plans

Most hotel franchises require periodic updates and improvements to the hotels that operate under their name. Your lender may request information on upcoming property improvement plans (PIPs) and the cost of these renovations before making a decision about your loan application. Making sure you can provide the required information in a timely way can increase your chances of success in obtaining the funds needed for your acquisition or renovation project.

High Occupancy Rates and Projected Demand

It may seem counterintuitive, but occupancy rates that are perceived to be too high may reduce your chance of acquiring financing for your hotel investment. Occupancy rates of 80 percent or over may serve as an indication to lenders that the market is primed for additional development that could significantly reduce future returns on these investments. This long-term approach to lending could limit your ability to acquire the funds needed for your hotel investment.

Stonehill is a direct hospitality lender with proven experience and knowledge of the hotel lending marketplace. We work with investors to create the most practical and effective solutions for a wide range of lending needs, including permanent, bridge and mezzanine loans. Call us today at 713-666-2544 to discuss your requirements with an experienced and qualified advisor. At Stonehill, we look forward to serving you.

Why Lenders Require Comfort Letters for Branded Hotel Financing

HIEX-Chalmette-LAInvesting in a franchise hotel can be a good way to diversify your portfolio and to achieve solid returns over an extended period of time. Finding the right hotel financing options can make this acquisition even more profitable. Comfort letters are designed to provide a legal framework for lenders and franchisors to handle situations in which the hotel purchaser defaults on the loan. Here are some facts every investor should know about comfort letters.

What Are Comfort Letters?

Comfort letters are documents that allow lenders to assume franchise rights if the original franchisee defaults on the loan. These letters include provisions that ensure that lenders can continue to operate the hotel in the event of default or foreclosure on franchise hotel loans.

Benefits of Comfort Letters

Comfort letters offer several benefits for all parties involved in the transaction, including the following:

  • Borrowers are more likely to find the most attractive hotel lending arrangements if the lenders have greater certainty that they will be able to recoup their investment even if the borrower defaults. This can improve the terms of these loans and can make it easier to obtain the financing needed to acquire franchise properties.
  • Lenders can more effectively collateralize their loans by ensuring the ability to maintain the profitability of the properties they finance.
  • Franchise companies can protect their brand name by continuing operations and maintaining a presence even when franchisees fail to meet their financial obligations and go into default on their hotel loans.

Many lenders require comfort letters before they will finalize loans for franchise hotel properties.

Crafted by the Franchise Company

In most cases, the comfort letter is drawn up by the franchise company as part of the franchising process. These legal documents may follow a standardized template or may be customized to suit the needs of the borrower and the lender. The contents of the letter may include some or all of the following provisions:

  • A provision that ensures the ability of the lender to appoint a receiver to operate the hotel for a short period of time during foreclosure proceedings
  • A clause that allows the lender to cure any default of the franchise agreement before it is terminated
  • A provision that allows for the resale of the property and the transfer of the franchise agreement to a third party if the hotel goes into default

These provisions are designed to protect the lender if the hotel financing loan goes into default.

Stonehill Strategic Capital is a direct lender serving the hospitality industry. We work with investors across the U.S. to provide the most practical hotel financing arrangements for their specific set of needs. Call us today at 713-666-2544 to discuss your financial needs with one of our expert loan originators. We work with you to provide the best options for your hotel financing requirements.

What Is Mezzanine Financing for Hotel Loans?

HIEX-Tavares-FLMezzanine financing arrangements can provide added flexibility for developers and property owners when acquiring funds for their projects. These hotel loans are designed to put the equity or ownership stakes of a project to work by taking out a loan using these assets as collateral. This can provide ready funds for acquiring new hotel properties, resolving cash flow issues or constructing a new project.

How Mezzanine Loans Work

Mezzanine loans are considered to be high-risk hotel lending arrangements. For properties that already have a sizable first mortgage, finding a lender willing to take junior status to provide a second mortgage can be a challenging proposition. Mezzanine financing lenders do not offer mortgages. Instead, they are collateralized by a lien on the company that owns the property. This can allow the lender to act much more quickly in cases of default, which can provide added incentive for a real estate private equity firm or other investor to offer these lending arrangements.

The Structure of Mezzanine Loans

Mezzanine loans are generally issued for amounts of more than $1 million and can be structured as short-term or long-term mezzanine debt. Depending on the lender, interest may be figured as fixed rate, floating rate or amortized. Most mezzanine loans are designed as short-term floating rate interest-only arrangements to be repaid as quickly as possible.

Applications for Mezzanine Loans

Mezzanine loans are typically used for one of three purposes.

  • These lending arrangements can provide added cash on hand for unexpected expenses or to pay off debts. The funds borrowed can be repaid out of the income generated by the hotel or other investment properties.
  • Probably the most common use of mezzanine loans is to leverage equity to acquire another income-producing property.
  • Mezzanine loans can also provide the funds needed to begin a new construction project.

By acquiring the necessary funding through mezzanine hotel loans, hotel owners and property developers can take advantage of opportunities in the real estate marketplace and can ensure the smoothest operations for their current holdings.

Benefits of Mezzanine Loans

In some cases, mezzanine loans may be available even for those who have been declined for traditional second mortgages. The way in which mezzanine hotel loans are structured and collateralized can make them a more attractive proposition for investors and lending firms.

At Stonehill Strategic Capital, we offer financial solutions tailored to the hotel industry. Our hotel lending experts can provide you with the right solutions for all your short-term and long-term financing needs. From bridge loans ranging from $5 million to $50 million to mezzanine loans up to $10 million, we can deliver the right options for your hotel and real estate development plans. Call us today at 713-666-2544 to discuss your financial needs with us. We look forward to the opportunity to serve you.

How Millennials Are Impacting the Hotel Financing Hospitality Industry

Millennials have had a definite impact on the modern workforce and the consumer marketplace. The millennial demographic is defined as those born in the 1980s and 1990s and is expected to constitute the largest segment of consumers within the next few years. The expectations of millennials traveling for business or pleasure are likely to differ sharply from those of previous generations. This could affect the types of hotel financing available for hospitality companies now and in the future.

Seeking Exclusive Experiences

Although they lack the disposable income currently available to older generations, millennials have demonstrated a willingness to shell out some of their cold hard cash to enjoy experiences outside their daily routine. Creating a unique atmosphere and tying interior décor to the local community can help hospitality companies attract their fair share of the millennial demographic. In some cases, working with a private equity real estate firm can provide the added hotel financing resources needed to update and upgrade accommodations for millennial guests.

Maintaining Connectivity

The modern business world and millennials demand constant access to the internet. Upgrading your hotel’s internet options can attract millennials and other business travelers who require reliable Wi-Fi connections to perform their work and to stay in touch with family and friends online. Making sure that your internet connectivity is dependable and capable of taking on the challenges of online business can be a major selling point for millennials and other tech-savvy individuals in the hospitality marketplace.

Providing the Right Amenities

Thanks to the immense popularity of social media sites among millennials, both good and bad news travels quickly. Making sure your guests receive the most practical amenities can help you to improve your online reputation and can ensure that you attract your fair share of guests and good reviews:

  • An office center can allow millennials to achieve greater productivity without leaving your hotel.
  • Room service or an on-site restaurant can also be valuable amenities that can transform a so-so stay into something truly memorable for your millennial clientele.
  • An elegant lobby with plenty of seating space can serve as an impromptu meeting spot for your guests and their colleagues.

By tracking the most-wanted amenities and providing them for your clients, you can stand out in the social media environment and can snag the best reviews for your hotel and your services.

At Stonehill Strategic Capital, we specialize in providing bridge, mezzanine and permanent hotel loans to help your hospitality company renovate existing properties and expand into new areas. Our team will work with you to ensure that you receive the most practical hotel financing solutions for debt service and new acquisitions. Give us a call today at 713-666-2544 to discuss your hotel lending needs with our expert staff. We look forward to the opportunity to serve you.

Why the Real Estate Private Equity Firm Industry Is Focused on the Hospitality Industry

Courtyard-Grenta-LAA newfound interest in the hospitality industry is fueling growth in private equity firms across the U.S. This reflects the relatively conservative approach still in effect at many banks and major lending institutions, which provides openings for a savvy real estate private equity firm to supply capital for hotels and other hospitality businesses. Here are some of the most important reasons for the current resurgence in private equity investments in the hospitality industry.

A Wide Range of Investment Options

Along with top-end performers in the U.S. and around the world, private equity investors are also able to access opportunities in the low-budget hotel marketplace. This can allow a more measured approach to investments in this volatile sector of the real estate investment field. By opting for the appropriate level of risk and choosing their hotel lending investments wisely, investors can optimize their returns while maintaining a healthy portfolio of balanced risks.

Partnership Opportunities

One of the best options for a smaller private equity real estate firm is to partner with companies already in the hospitality investment business. This can provide a valuable buffer against downturns in this marketplace while ensuring that investors can participate fully in this side of the commercial real estate marketplace.

Increased Prospects for Profitability

Real estate private equity firm investors can also access increased opportunities for profit taking and, in some cases, added control over the direction of the hotels in which they invest. By expanding their real estate investment portfolio to include hotels, motels and long-term lodging providers, these investors can often boost their overall profitability while enjoying a more diversified array of investments.

Benefits for the Hospitality Industry

For hotels and businesses that offer lodgings for travelers, acquiring new streams of capital investment can allow for expansions, renovations and debt restructuring to ensure greater profitability for their ongoing operations. This could represent a win-win scenario for investors and for hotel owners and managers alike. Improved cash flow and access to necessary capital resources from a real estate private equity firm can help hotels compete more effectively in today’s diverse hospitality marketplace.

At Stonehill Strategic Capital, we specialize in providing lending solutions for hotels across the country. We work with large hotel corporations and chains as well as smaller enterprises with a personalized approach to the hospitality industry. We can restructure, recapitalize and reposition your company for maximum financial flexibility and increased power in the hotel world. Whether you need bridge loans, mezzanine loans or permanent hotel loans, we can create a lending solution that is just right for your needs. Give us a call today at 713-666-2544 to discuss your needs with our financial experts. We look forward to the opportunity to do business with you.

Underwriting Basics of Hotel Lending

westinFinding the right hotel lending solutions can boost your profitability in the competitive marketplace. Understanding the complex hotel underwriting process can be a good first step toward qualifying for the funding you need to expand or to refinance your hotel. Here are some key points to remember about your hotel financing options and the best ways to qualify for underwriting for your hotels and other commercial properties.

Flags and Franchises

Hotels with recognizable names are more likely to attract customers and achieve profitability than comparable properties not affiliated with a franchise. Known as flagged hotels, these franchise enterprises offer added assurances to your guests of consistent quality and reliable service. Your chances of achieving favorable terms for your hotel financing arrangements are greater as part of a well-known chain or national franchise. If your franchise agreement is up for renegotiation in the near future, you may be best served to extend your franchise agreement early or to discuss terms with your lender to determine the best course of action for refinancing your hotel.


A desirable location can also help you qualify for hotel refinancing arrangements. Your underwriter will look at the real value of the property as well as its revenue-generating potential. This can significantly affect your ability to achieve refinancing on reasonable terms and could increase your opportunity for success in this complex process.

Historical Performance

Traditional hotel underwriters also look at the current and historical performance of the hotel to determine whether hotel lending options are a risk-appropriate choice for the lending company. In some cases, working with a real estate private equity firm can provide greater flexibility and added options for hotel owners. These investment companies can typically accept greater risk and may be more likely to approve your hotel refinancing application.


The amount of equity you have accrued may also play a role in the ease with which you can obtain underwriter approval for your hotel refinancing application. Providing your lender with complete documentation on the status of your current loan can ensure that your application receives the consideration it deserves.

At Stonehill, we specialize in providing creative lending solutions for the hospitality industry. We offer debt financing, refinancing, funds for acquisitions and for renovations and all your other hotel lending needs. Our extensive experience and flexibility make us an excellent choice for refinancing debt or accessing cash for needed renovations to your hotels. If you need permanent, mezzanine, bridge or preferred equity loans, give our team members a call today at 713-666-2544 to discuss your situation with us. We look forward to the opportunity to provide the financing your hospitality business requires.

Stonehill Projects Record Year in Transaction Activity

Stonehill hit a record high in the first quarter, closing approximately $190 million in hotel financing. That follows a strong 2015, in which the Atlanta-based direct lender executed on 23 transactions. With a substantial number of projects already in the pipeline, the company is actively funding acquisitions and recapitalizations for both stabilized and transitional assets with strong flags in secondary and tertiary markets.

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